Contents
Acknowledgments Introduction ABOUT LIFE Omaha? Omawhere? Omawhat? Live how you want to live Eat what you want to eat Have a hobby Be passionate Aim high Aim well Focus on your goals Keep life in perspective Be honest Tell the whole truth. please Letter to the Wall Street Journal Cultivate good character Believe in yourself But don’t get too stuck on yourself Dodge the hype Share your wisdom Disregard old age ALSO: Attention Investors: Warren Buffett is crossing the street 20 xiii 1 13 13 15 15 16 19 20 23 23 23 27 28 30 36 37 38 44 44 45
vii
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matriarch of the Nebraska Furniture Mart 47 ABOUT FRIENDS Know what friendship is Go to bat for your pals Guiding Governor Schwarzenegger Build lifelong friendships ALSO: Charlie Munger 51 51 51 52 54
54 58 58 62 75 81
ABOUT FAMILY Don’t spoil your kids The Buffett children Work things out with your wife Be kind to your mother ALSO: What others say about Warren Buffett Astrid Menks. Buffett’s second wife 78 The controversial Susan T.viii CONTENTS
Nice guys ﬁnish ﬁrst—sometimes 24 Choose your heroes well 40 Rose Blumkin. Buffett Foundation 79 What Leila Buffett had to say about her son 82 What the critics say 82 ABOUT WORK Work for the fun of it Start early
70
85 85 88
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manage little Put a premium on experience Be smart about allocating capital Be brave Use crossover skills The mighty machine called Berkshire Hathaway ALSO: The Berkshire Hathaway annual meeting Goodbye to a good idea 106 The Salomon scandal 108 Berkshire Hathaway online 109 ABOUT INVESTING Have a philosophy Recognize the enemy: inﬂation Experience epiphany Never mind what the professors say Meet Mr. not your guide Ignore Mr.Contents ix
Work where you want to work Work with good people Give a pat on the back Be loyal to your partners Guard your time Know when to quit ABOUT RUNNING A BUSINESS Communicate well Know when to say no Set an example Take care of shareholders Hire well. Market—your servant. Market’s moods 89 90 92 93 95 97 99 99 100 101 104 110 111 111 112 112 113
102
116 116 117 119 125 126 129
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but a good company is more important Avoid the Institutional Imperative (the tendency for corporations to act like lemmings) Favor companies that repurchase their own stock Don’t worry about diversiﬁcation Invest for the long term To sum up And when you’ve become wealthy by following in the footsteps of Buffett. pay your dues to society Investing is one way of contributing to the public well-being When rewards are disproportionate 175 182 185 186 190 191 193 196 197 199 202 203 204 205 206
206 207 207 208 209
210 210 211
.Contents xi
Be capable of change Admit your mistakes No thumb sucking Join AA (Airlines Anonymous) Learn from your mistakes Buy storybook stocks Seek excellent companies Stick with quality Junk bonds Appreciate franchise value Respect pricing power Find a company with cheap ﬂoat (then try to not misplace the company) Learn to like Monopoly Find managers who think like owners Management is important.

1
. and the very essence of the world’s most successful investor. Warren (with a less than admiring inﬂection). . St. Omaha’s plain dealer. except perhaps his own words. and the ﬁnancial world’s Will Rogers. .1 He’s been dubbed the Oracle of Omaha. the corn-fed capitalist. Several books attempt to capture the personality. He could also be called the king of bling for his ownership of jewelry stores. Nobody does Warren Buffett as well as Warren Buffett. Borsheim’s of Omaha. but words fail to adequately describe this unique individual . It was this realization that inspired this collection of his aphorisms and observations. the philosophy.Introduction
Is there anyone anywhere who has more nicknames than Warren Buffett? Vanity Fair called him the Forrest Gump of ﬁnance. including the second-largest in the United States.

and Suzie with a z refers to Susan the daughter. They were a close and affectionate couple. .. in Omaha. House of Representatives. He attended grade school there but went to junior high and high school in the Washington. who soon became Buffett’s mentor and friend. Susan passed away from a stroke in 2004. where his father. He enrolled at the University of Nebraska (Lincoln campus). It was at Columbia that he met the great investor Professor Benjamin Graham. Nebraska. He then applied to Harvard but was rejected. D. an Omaha neighbor. Warren Edward Buffett was born August 30. were married in 1952. Howard Homan Buffett. Instead. Susie with an s refers to Susan the mother. The details will unfold as you read the rest of the book . Buffett earned a master of science in economics from Columbia University in 1951. where he earned a bachelor of science degree in 1950. Buffett and Susan Thompson.2 WARREN BUFFETT SPEAKS Who is this modern American hero/questionable saint? Here are the basics. but their relationship puzzled many people.S. (By the way. area.C.)
. The couple raised three children: one daughter and two sons. . In college. served four terms in the U. 1930. The Buffetts resided in separate cities for many years. told in his own words. Warren abandoned the Wharton School at the University of Pennsylvania because he didn’t think he was learning anything.

and yet a few things have remained the same. He was among the top richest Americans then and still is number two.” She lived in San Francisco and told me. and it remains so. Now for the changes: As Buffett always said would happen.000. as Berkshire Hathaway has continued to grow in size. who with her husband owned a majority interest in Berkshire Hathaway. Warren Buffett was the most amazing investor in the United States. Berkshire Hathaway was the most unusual (and highest-priced) stock in the world. but the most dramatic movements have been in Buffett’s personal life. A lot has happened since I ﬁrst wrote Warren Buffett Speaks in 1997. Several years after Susie’s death. making him the lowest-paid executive among the largest 200 companies in the country. “I have a quiet life of my own with my family and people I love. empathetic person whom Buffett described as “a free spirit. and he remains a plus ultra business leader.” Buffett continued to live in Omaha. Let’s begin with the things that are the same: Back then. he was not instantly
. Buffett continues to collect an annual salary of $100. While Buffett was fairly well-known when I ﬁrst started writing about him. Expansion and innovation have taken place at Berkshire as it evolves. Warren remarried.Introduction 3 Susan Buffett. was a vivacious. the difﬁculties of investing the mountains of cash also compound.

Times Co. between 2004 and 2007. Some business events have been uncomplicated.” 2 That impact could not have been more obvious than in February 2007. Some important people have
. might have been a temptation to the value investor in him because. that’s a b. its shares had fallen 44 percent. the N. Buffett ﬁrst stepped to center stage when he became ﬁnancial adviser to California gubernatorial candidate Arnold Schwartzenegger. rose 3. “his biggest job has become managing his own impact. such as severe stock market swings and difﬁculties with the purchase of General Re insurance company. Although Buffett has said newspapers are no longer economically interesting. noted Vanity Fair magazine.Y. when shares of the New York Times Co. such as Buffett selling his minority ownership in the Omaha Royals baseball team. not an m) in assets to the Bill and Melinda Gates Foundation. Others have been signiﬁcant and stressful. There have been painful and signiﬁcant transitions in Buffett’s personal life. Perhaps the most surprising advance at Berkshire has been its foray into foreign investments. he came fully into the spotlight when he dedicated some $30 billion (yes.4 WARREN BUFFETT SPEAKS recognized by those who had no connection to the ﬁnancial world.8 percent in a single day on rumors that Buffett was buying shares of newspaper companies. In both his ﬁnancial life and his civic life.

the Buffett Partnership. they funded the foundations with 129 shares of Berkshire class A stock and 68 shares of class B stock at a cost of just over $2. And Buffett’s children seem to have come more fully into their own identity.806—a growth of $11. Buffett’s professional record speaks for itself. including his wife. At least the world is getting to know them better. such as the restructuring of his plans for charitable giving and the Gates Foundation contribution. and Philip Carret. The former head of Coca-Cola. the contributions to the children’s trusts give some idea of how talented an investor their father is. his mother. His ﬁrst investment fund. This remains the most constant fact about Buffett. When Warren and Susie ﬁrst established the children’s charitable trusts.000. Shortly after the 100-member
. Buffett publicly recognized their autonomy and maturity by making generous contributions to their own charitable trusts. ran from 1956 to 1969 with a record of 32 percent average annual return before fees.351. Incidentally. Don Keough. The present value of the stock is $11. Rose Blumkin. once said that Buffett’s life story was not about money but about values. Susan’s death led to other momentous changes in his personal life.353. This book looks at what makes Warren Buffett special among the world’s billionaires. and his beloved friends Katharine Graham. William Ruane.614.Introduction 5 passed on.

Buffett sets very tough standards and sticks to them. but it would be a mistake to underestimate his intelligence. Buffett continues to be plainspoken.3 and that’s pretty much the way he does everything. Berkshire’s per-share book value has grown at twice the rate of the Standard & Poor’s 500 index. He follows a simple wisdom. My suspicion is that Buffett purposely retains his homespun language and explains things in parable form to better communicate with us mere mortals. government bond scandal as “fast./ U. plus 10 cents per share commission. Dozens of people who invested with Buffett when he ﬁrst started managing money remain with him today—or their heirs do. Despite his inﬂuence and afﬂuence. Buffett began transforming Berkshire Hathaway from a textile manufacturer to a holding company/investment vehicle that has no exact parallel on Wall Street. knowledge.S. many of us would be lost. The Economist described Buffett in handling the Salomon Inc. frank. when shares were trading between $12 and $15. When he lets loose with his full vocabulary and intellect. or resolve. honest.6 WARREN BUFFETT SPEAKS partnership closed. In its 42 years under Buffett’s tutelage. When Buffett bought his ﬁrst 200 shares of Berkshire Hathaway. optimistic. the stock was selling at $7.
. and funny. and folksy”.50 per share. Buffett took control of Berkshire Hathaway in 1965.

Ruane
. founder of Sequoia Fund. Inaccurate or imprecise journalism raises his hackles. shares were trading around $500. though he seldom couches criticism in personal terms. The late William Ruane. and friends crowd into Omaha to attend Berkshire’s annual meeting and to hear him. Investors gather all over town to swap Buffett stories. or relate to his bottom line. He cuts no slack for advisers who lure investors into speculative ventures. had been Buffett’s friend since they met in Benjamin Graham’s seminar at Columbia University. only about 15 attended the annual meeting. about 400 shareholders attend the meeting. shares were trading around $2. people listen. When Buffett speaks or writes. Shareholders. he does not spend time on projects. In the early 1980s. For example. failing to acknowledge the basic. Through the 1990s. concepts.000 Buffett fans burst the seams of Omaha’s largest meeting space. or people unless they interest him. 10. By the late 1980s. He can be impatient when his patience is tried. underlying economic function of stocks and the stock market. By 2006. family members.Introduction 7 Though Buffett is invariably polite.500. Buffett has few kind words for academicians who chase one investment theory after another. seem worthy. the Qwest Center. Buffett moved to progressively larger venues as attendance grew. Those with the earliest Berkshire Hathaway purchase dates are the elite.

” the judge interjected. and the attorney asked him a question. and Buffett spun his yarn.
. That is not my objective. “Please. but he can explain something so simply and with such clarity that.” “Warren’s gift is being able to think ahead of the crowd. He was testifying as an expert witness in a federal case. “and it requires more than taking his aphorisms to heart to accomplish that— although Warren is full of aphorisms worth taking to heart. along with points of view of those who don’t think he’s so terriﬁc. Buffett. I admit the material is presented in a mostly friendly light. Mr. at least at that moment. Nevertheless.” 4 Once.” Buffett protested that this was his manner of communicating. The judge sighed. This may lead the reader to assume that I will try to present Buffett in the best light. chief executive of Microsoft and a Berkshire board member. you understand exactly what he is saying. It is my goal to demonstrate his unusual way of thinking and to let the readers make their own value judgments.” wrote Bill Gates.8 WARREN BUFFETT SPEAKS described Buffett’s speaking skills this way: “Warren is a genius. Buffett’s storytelling habit earned him a rap on the knuckles.5 By way of disclosure. After all. I’ve included incidents where Buffett’s behavior is difﬁcult to understand. I have interviewed and met Buffett numerous times and admit to liking him. “not another story.

This compilation of Buffett’s quotations could be called A Life’s Little Lesson Book for investors. a little story. unless you have something new. The topic headings are followed by one or more quotations. The sayings (plus anecdotes by and about Buffett) are organized under broad general categories. His parents obviously told him that if he couldn’t say something nice about a person. Considering the enormous pressure now put on him by a wide range of “others. and dispersing wealth for
. Although he is open to ideas. A cheerful good humor and lack of malice dominate Buffett’s personality. or a short account of an event.” he does a commendable job of being himself. But there is also a subtle quality to his demeanor that implies he means what he does say. he shouldn’t say anything at all. Buffett apparently has long been sure of what he thought and was ready to explain his point of view. Each quote is a small clue to the philosophy by which Buffett lives while creating. I would not have spent so much time and energy on this book.Introduction 9 if I didn’t think Buffett had useful things to say. Some people gain this kind of selfconﬁdence with age. When necessary. and he believed it. I have placed the quotation in its proper setting. and beneath those categories are speciﬁc headings. and convincing to add to his information. constructive. he is unlikely to be swayed. managing.

10 WARREN BUFFETT SPEAKS himself and many. and what the players have to say about themselves and their role in the Buffett saga. there is a time line at the end of the book. and events. I’ve quoted the exact wording. each phrase connected by “and. what these people and incidents say about Buffett. I’ve emphasized the words he emphasized. when he is relaxed and talking without notes—which is always—his grammar is not perfect. and treatment of the quotes. Included are segments about signiﬁcant friends. To help keep track of Buffett’s life. I copy edited ever so slightly. Buffett’s comments don’t always translate perfectly from speech to written word. But whose is? He uhs and ums his way through a statement and then repeats himself. To a certain extent. it’s Buffett’s delivery that makes his comments so entertaining.” When it seems the best way to get a point across. placement. sorry to say. for the sake of clarity and space. Though Buffett speaks well. please remember that this is a collage. I have tried to give the reader a sense of Buffett’s personality through selection. nor were comments on related topics necessarily said at the same time. family. Even though the collection is conversational in tone. The comments did not necessarily occur in the order listed here. In an occasional rare instance. When possible. colleagues. many others. He can speak for 10 minutes without ending a sentence. Ums and uhs
. including imperfections.

or if they did know how. would mostly likely go into many. Buffett was handed a copy of a wire service story about his comments.) years” construct. In almost all cases. There was a small but signiﬁcant error in the story. 10. It is important to Buffett that he be understood clearly. for example—in terms of net worth at an age when most people didn’t know how to ﬁgure their net worth. I have noticed some intriguing patterns. and in time would be chiseled in marble. they would come up with a negative number. Several hours after he spoke. many research databases. plural or singular. . In compiling this book. This was done with meticulous care to preserve Buffett’s intention and meaning. He writes his annual reports to a sister who has been on an extended vacation or suggests investing as if you
. I once was with him in New York. . I don’t think I did. whenever it appeared that a quotation was or could be misinterpreted. the discrepancy is discussed in the text. Buffett started measuring the value of many things—the price of his wife’s engagement ring. the change is in brackets. . For example.Introduction 11 were eliminated. So.” He clearly was disturbed that this misquotation would be repeated worldwide. He also likes the “pretend you’re going away for (5. “I don’t think I said that. or the noun and the verb were made to match in terms of past and present. Did I say that? No.

that heartlanders were simple in their psychology or unﬂawed in their nature. It has been interesting to see how others interpret and what they glean from Warren Buffett Speaks. balance. Willa Cather fans will recognize immediately in Buffett the unpretentious intelligence. and sense of authority over oneself that the Nebraskareared novelist saw in her fellow Plainspeople. Readers may observe patterns that I have missed. “Punching tickets” and “accumulating claim checks” are common Buffett metaphors. it is up to each of us to decide for ourselves who the real Warren Buffett is. This said.12 WARREN BUFFETT SPEAKS wouldn’t be able to change your mind for a decade.
. Cather did not claim. depth. however.

ears perk up all over the world. They bring forth an “Ah ha!” or “Of course!” Buffett’s comments seem to touch many aspects of our lives. His words often have relevance beyond the immediate issue. or the price of corn in Nebraska. his friend Charlie Munger says that Buffett also is one of the happiest people he knows. 13
. Before reading what Buffett has to say about successful investing. business ethics.About Life
When Warren Buffett speaks on stock markets.” as his dad called him— spent his early years attending public school in Omaha.
OMAHA? OMAWHERE? OMAWHAT?
Warren Buffett—or “Fireball. let’s see what he says about the more important subjects of living productively and being content. Though he ranks among the wealthiest people in the world.

and I’d just stand up all night. that there were more stimuli just hitting me all the time. I can get the pluses of New York and Los Angeles by getting on a plane and ﬂying for three hours. was elected to the U. He worked for the GrahamNewman Company in New York.1 Clearly. Young Warren pined to go back home: “I was miserably homesick.” 2
“I think it’s a saner existence here. but I pay no penalty by having to live there. at age 25.S. the family moved to the nation’s capital.” Eventually. but the logistics of New York take a lot of time. to get a good night’s sleep themselves.” Buffett later attended Wharton School of Business at the University of Pennsylvania and graduate school at Columbia University. he went home to Omaha to stay: “I’ve lived in New York and Washington. 12-year-old Warren was allowed to return to Omaha to live with his grandfather until the end of the school term. I told my parents I couldn’t breathe when lying down. when I worked back in New York. I told them not to worry about it. Howard Buffett. Warren agreed with those who call it the “beautiful island of Omaw-hah.14 WARREN BUFFETT SPEAKS When his father. but in early 1956. House of Representatives. and you’ve got the
. I used to feel.

” 5 Is Buffett’s lifestyle merely the path of least resistance for him? “It’s easier to create money than to spend it. Buffett has been all-American: “My ideas about food and diet were irrevocably formed quite early—the product of a wildly successful party
.
LIVE HOW YOU WANT TO LIVE
“One of the things that attracted me to working with securities was the fact that you could live your own life. the solidity.” said Warren Buffett. It’s much easier to think here. It may lead to crazy behavior after a while. a musician. You don’t have to dress for success. the spiritual roots of a homeland.4 “I can’t think of anything in life I want that I don’t have.” Peter Buffett said of his composition. Peter. you start responding to them.About Life 15 normal amount of adrenaline. composed a song called “Nebraska.” It reﬂects a similar love of America’s heartland: “It expresses how strongly I feel about having the foundation.” 3 Buffett’s younger son.” 6
EAT WHAT YOU WANT TO EAT
If we are what we eat.

when calories aren’t worth the cost. in order to avoid premature death through starvation. Holding his hand over his glass. I’ll take cash. In my own case—with a life expectancy of about 25 years—this means that. Assume that your basal metabolism rate is 2. thanks.” 9
. hamburgers. Buffett once was offered a glass of high-priced wine at a dinner party. I need to eat some 25 million calories. On that occasion we had hot dogs. and ice cream. Why not get on with it?” 7 There are times. Simple arithmetic tells us that you can—indeed you must—consume slightly over 1 million calories per year.800 calories per day. he replied: “No. however. popcorn.” Buffett’s signature dish is a Dusty Sundae: He pours lots of Hershey’s Chocolate Syrup over vanilla ice cream and then heaps malted milk powder over that. He likens ﬁnding a good acquisition to “bagging rare and fastmoving elephants.16 WARREN BUFFETT SPEAKS that celebrated my ﬁfth birthday.” 8
HAVE A HOBBY
Investing is both sport and entertainment for Buffett. soft drinks. He justiﬁes the calories mathematically: “The caloric consumption produced by this concoction is inconsequential.

he still occasionally plays golf. The game took place in Forbes’s London mansion. He likes the game so much that he says: “Any young person who doesn’t take up bridge is making a big mistake. and at the 1996 annual meeting. such as to celebrate an award given by the Omaha YWCA to his daughter for her work on The Rose Theater.” 10 Buffett played bridge with Forbes publisher Malcolm Forbes the night before the ﬂamboyant capitalist died of a heart attack. his card game has risen to new levels. he organizes a meeting of the Buffett Group. The CASH team consisted of Buffett. Although he quit racquetball after injuring his back. friends. a noticeably slimmer Buffett explained that he’d taken up working out on a treadmill. He gathers with family and friends for special occasions. family. Every other year. a gathering of his longest and dearest friends. and under the guidance of an expert coach. versus Classic or Cherry Coke. Forbes. and for Bill Gates’s wedding on the Hawaiian island of Lanai. Bridge has been Buffett’s great passion.
. Bear Stearns chairman Alan “Ace” Greenberg. CBS chairman Laurence Tisch. and the card game of bridge ﬁll his spare time.About Life 17 However. and it pitted Corporate America’s Six Honchos (CASH) against British members of Parliament. The audience noticed that he’d also switched to sipping Diet Coke at the meeting.

a network that allows him to play cards from home with friends around the country. Gates Sr..” 11
“I always said I wouldn’t mind going to jail if I had three cellmates who played bridge. but once I got started it was easy.18 WARREN BUFFETT SPEAKS and several other Americans. distinguished friends in Washington. “I’d walk by a PC and be afraid it might bite me. They played morning and afternoon. “I don’t think about anything else when I play bridge.: “Now it is much easier to get the game up and running with the same people I usually played with.” 12 Buffett’s bridge coach (Sharon Osberg is a world champion player whom he met through bridge-playing friend Carol Loomis) introduced him to the computer and to ImagiNation. California. D. I played for six
.” Thanks to the computer. and even William H.C. Buffett now cuts the deck with his sister and her husband who live in Carmel.. with the CASH team ﬁrst losing to bridgeplaying members of the House of Lords and then besting members of the House of Commons. the Seattle attorney whose famous son founded Microsoft Inc. only now we all sit thousands of miles apart.

“The Indefensible. alas. love affairs sometimes end. It’s going to be buried with me. fractional-ownership service. once he tried the computer.About Life 19 hours one Sunday. he was hooked.”16 But. both Buffett and Munger. Munger” in honor of his partner. When Berkshire acquired NetJets Inc.” 13 Bill Gates explained what followed: “Despite the fact that he had studiously stayed away from technology and technology investing. as it did when Buffett bought his corporate jet. Now Buffett sings the praises of NetJets.” 14
BE PASSIONATE
Passion sometimes involves spending money.” 15 After Buffett went to New York for nearly a year to work through problems at Salomon Inc. he began calling his plane “The Semidefensible.
. I don’t play as many face-to-face games anymore. Now.” Buffett considered naming the plane “The Charles T. in 1995. Warren uses online services more than I do. started using the corporate-jet.. who still resolutely ﬂew economy class: “I’ve fallen in love with the plane. many weeks.

” Buffett replied. The question pops up more often than toast at breakfast. ﬁrst Pepsi-Cola and later Coca-Cola (Cherry Coke. what is your next goal? “That’s easy. and the late Susie Buffett decorated the entrance with 3-foot-tall Pepsi bottles in the front windows. “I usually say I feel sorry for the
.”17 But he doesn’t believe in overreaching: “I don’t try to jump over seven-foot bars: I look around for one-foot bars that I can step over. “Everybody who knows Warren knows he doesn’t have a bloodstream—it’s a Pepsi stream. he even has it for breakfast. to be precise).20 WARREN BUFFETT SPEAKS Buffett has had a lifetime love for cola drinks.
AIM HIGH
Now that you are the richest man in America.” Susie said. The Buffetts once threw a party. asked a shareholder at a Berkshire Hathaway annual meeting. “To be the oldest man in America. an investor asked what would happen to Berkshire Hathaway if Buffett were to get hit by a truck.” 18
ATTENTION INVESTORS: WARREN BUFFETT IS CROSSING THE STREET
At the 1996 annual meeting.

” 21 1991: “Our businesses run as if I’m not there.” said a member of the audience at the annual meeting.” 22 1993: Even the media reminds Buffett of his mortality. so the exact location of my body shouldn’t matter. Buffett noted: “The managers have a corporate commitment and therefore need not worry if my personal participation in Berkshire’s affairs ends prematurely (a term I deﬁne as any age short of three digits). I’ll be disappointed if it goes up a lot. ‘My God. I’d like for the minister to say.20 1986: “This is the proverbial ‘truck’ question that I get asked every year.About Life 21
truck. But Berkshire is pretty easy to run. Buffett surmised that the stock might “move up a quarter or a half point on the day that I go.” 24 1995: “I’m thinking of making a purchase of Berkshire.” Buffett sometimes quips. Investments would continue. and no Berkshire stock would need to be sold. “but
.” Also.’ ” 23 1994: “I have publicly announced I plan to run Berkshire until 5 or 10 years after I die. A television reporter asked how he’d like to be remembered: “Well. If I get run over by a truck today. Charlie [Munger] would run the business. he was old. Over the years he’s tried various comebacks:19 1985: In an article about Berkshire’s long-term
commitment to the companies it acquires.

.” Buffett replied. in the 2006 annual report.22 WARREN BUFFETT SPEAKS
I’m concerned about something happening to you. I cannot afford an event risk. It was widely believed that Louis Simpson. A few years back. even with some slow years thrown in here and there. who has invested GEICO’s insurance ﬂoat for the last 25 years. just so it’s not a GEICO driver. . but . The notion that Simpson would take over investments when Buffett could no longer handle them fell by the wayside when. Despite his skills. “Well.
. Buffett announced that his son Howie would become Berkshire’s chairman and that several current managers would take over the operation of the company. would manage much of Berkshire’s investments. Simpson is only six years younger than Buffett. and he’s planning ahead. During his time at GEICO. 2000: He wouldn’t want to be roadkill.” “Neither can I. Simpson outpaced the S&P 500 by almost 7 percent a year. shareholders got the message: Buffett acknowledges his mortality. Buffett wrote that he was accepting resumes from younger candidates for the job. Buffett would like to have a succession plan with a longer tail.” 25 2006: When Buffett surprised the world with his more than $30 billion charitable giving plan in 2006.

not where it is. But my partner. go where the puck is going. says Buffett: “Like Wayne Gretzky says.” 29
KEEP LIFE IN PERSPECTIVE
Buffett had a notepad on his desk that read: “In the event of nuclear war. disregard this message. says all he wants to know is where he’s going to die—so he won’t ever go there. we don’t get off at Altoona and take side trips.” 28 “I’ve often felt there might be more to be gained by studying business failures than business successes. New York to Chicago.About Life 23
AIM WELL
Invest the same way an expert plays hockey. commenting on investments resulting in a 22 percent compounded growth for 20 years: “It has been like overcoming a misspent youth.” 30 In 1985. Charles Munger. it’s better to swim with the tide than to work on your stroke.” 26
“To swim a fast 100 meters.” 27
FOCUS ON YOUR GOALS
“If we get on the main line. It’s customary in business schools to study business successes.” 31
.

24 WARREN BUFFETT SPEAKS At a cocktail party.” 33
“Success is having people love you that you want to have love you.” 35
NICE GUYS FINISH FIRST—SOMETIMES
“We’ve seen oil magnates. a tipsy woman approached Buffett and cooed.” 32
“Money.” 34
“It irritates the hell out of me. and robber barons at the top of the money heap.36 Rothchild failed to mention that Buffett didn’t start with inherited money. shippers.” says Time reporter John Rothchild.” Buffett told a reporter: “I don’t measure my life by the money I’ve made. but you can’t buy love. Other people might. but Buffett is the ﬁrst person to get there just by picking stocks. Buffett’s progression to the top tier of the wealthiest Americans no doubt will become an American legend. But it can’t change how many people love you or how healthy you are. but I certainly don’t. stories of successful self-made people will
. to some extent. sometimes lets you be in more interesting environments. he made it on his own. From now on. real estate moguls. Forget Horatio Alger stories. “I see money hanging all over you.

starting in 1943.07 BILLION. worth $2. and John Kluge. News & World Report published a list of 100 individuals and families who owned the biggest stakes in America’s publicly traded companies.1 billion. with $3. U.8 billion.2 billion. First was Getty with $4. 1989: Buffett sped ahead to number 2 with $4. Ludwig was ﬁrst on the list with $2 billion.S. Walton made the top with $2. Ross Perot was number 2 with $1. and Gordon Peter Getty was number 2 with $1. Buffett ranked eighth. they forgot to allow for a couple of burgers that I bought at Bronco’s last night.7 billion. Second was Sam Walton.” 39 1988: Buffett’s net worth rose to $2. 1985: BUFFETT
BECOMES
NEBRASKA’S
FIRST BILLIONAIRE WITH
$1. with the Walton family at the top. Step by step.8 billion. this is how he climbed up the Forbes 400 list of wealthiest Americans. but he dropped to ninth place.2 billion.2 billion. 1984: Buffett was number 23 with holdings worth $665 million. 1943: Warren tells a pal that he will be a millionaire by age 30 or “I’ll Jump off the tallest building in Omaha.About Life 25
be called “Warren Buffett” stories.38 He ranked number 12 on the Forbes 400.3 billion. In 1986. Buffett observed: “Did you see how precise they tried to be? The only thing is. John Kluge was number 1 with $5.4 billion.2 billion. The leader
. with $6. were in the lead.” 37 1982: Warren Buffett ranked number 82 with $250 million. Daniel K. Walton.

Bill Gates fell to secondwealthiest American with $6.2 billion.9 billion. though. On the tug-of-war between Buffett and Gates for ﬁrst. On the other hand. but as rich as ever. Both men were far ahead of the pack.16 billion. when you’re number 2. you spend all your time explaining to your family how you failed. in 2007. Alas. then Gates pulled way out in front. a Japanese developer worth $15 billion. Bill Gates.2 billion. Buffett took fourth place with $4. Gates’s net worth was estimated at $50 billion. In 2006. When you’re number 1. Kluge again was in ﬁrst place with $5.or second-richest person in the United States.40 1994: Back to second place.35 billion. took second place with $4.8 billion of net worth.26 WARREN BUFFETT SPEAKS
worldwide was Yoshiaki Tsutsumi. The thirdwealthiest person was Carlos Slim Helu of Mexico with $30 million. Gates led with $9. 1993: NUMBER 1 WITH $8. 1991: Lower on the list.” 41 Buffett and Gates took turns being richest man in the world for a few years. Buffett’s wealth rose to only $9. Slim became number one.
.3 BILLION. you’re always looking over your shoulder to see who is coming up from behind. there must be some tension between the two men. A newcomer. satirist Art Buchwald observed: “Despite being friendly in each other’s presence. while Buffett’s was only $42 billion.

“How do I know the numbers in the back
. was so low. ‘Don’t say anything. at that time trading at about $6.About Life 27
BE HONEST
Buffett told his son Howard: “It takes 20 years to build a reputation and ﬁve minutes to ruin it. Buffett mentioned the question in his next annual letter to shareholders.” 42
“Never lie under any circumstances. Kenner asked.’ You’ll never get tangled up if you just basically lay it out as you see it. Noting that since the annual report mistakenly said that he was 11. Nicholas Kenner appeared at the next annual meeting with an even tougher question. you’ll do things differently. when actually he was 9 years old. they’ll basically tell you. If you start letting lawyers get into the picture. There was the Nicholas Kenner affair. Don’t pay any attention to the lawyers.” An untruth can be accidental. If you think about that. Buffett opened the 1990 annual meeting question-and-answer period by taking an inquiry from the 9-year-old New Yorker who then owned 11 shares of Berkshire.600 per share. The youngster asked why Berkshire’s stock price.

even working from the basement of Buffett’s home so that the eight-page story would not leak before it was printed.43 Little white lies are forgiven if they boost the sales of See’s Candy.” 44
TELL THE WHOLE TRUTH.
. a company owned by Berkhire Hathaway. They quietly went to work on the piece. He talked to the Sun staff.28 WARREN BUFFETT SPEAKS [the ﬁnancials] are correct?” Buffett promised a written response to the question. neighborhood weeklies in Omaha. Buffett later became something of an investigative report for a story that won a 1973 Pulitzer prize. It all began in 1969 when Buffett bought the Sun newspapers. at the time a shelter for homeless boys. was amassing large amounts of money from its heart-wrenching pitches and not spending the funds on helping children. He had heard rumors that Father Flannigan’s Boys Town. Buffett learned of a new Internal Revenue Service (IRS) regulation requiring charitable foundations to publicly disclose their assets on a Form 990. we spread the rumor that our candy acts as an aphrodisiac. Very effective. that is. who got a copy of the IRS ﬁling that corroborated the rumor. “When business sags. The rumor. PLEASE
The high standards Buffett holds for journalists go back to his days as a well-organized paperboy. not the candy.

There may be doctors out there who can do you just as much harm. explained. but in that case. that can do you as much damage as somebody can in the press. Though he has a lifetime involvement with newspapers. if they do something the wrong way. “Without Warren there was no story. and then he analyzed the vast Boys Town holdings that totaled $219 million. and neglected children. since it’s not Buffett’s habit to parade his wealth. abandoned. virtually with the exception of an assassin. It was his idea.” 46 One misunderstanding with the media involved the Lifestyles of the Rich and Famous television show. It remains a leader in the treatment and care of abused. you initiate the transaction. no Pulitzer. Buffett says dealing with reporters can be risky: “The tough part about it is that essentially there is no one. Buffett’s friends were more than a little surprised when he was featured on Robin Leach’s program.” 45 Since then Boys Town has regained public trust and has expanded into Girls and Boys Town with facilities in 19 different locations around the country. he told us about the Form 990.
. publisher of the Sun newspapers and later publisher of the Buffalo News.About Life 29 Stan Lipsey.

(Read more about that on p. but he approved. 52.) The story implied that Buffett felt California should have higher property taxes. was picked up and repeated around the world. A ﬁlm crew never came to his home. more in line with those in Omaha.47
NOTE:
LETTER TO THE WALL STREET JOURNAL
On August 15. It wasn’t a sit-down interview. Suddenly.” Leach disputes that version of the story. Buffett was not happy about that:
. “I never heard from Robin Leach. we were just on the show. the Wall Street Journal published a front-page story about Buffett and his part in Arnold Schwarzenegger’s run for governor of California. That’s why we billboarded the show as an exclusive. In actuality. 2003. “Buffett absolutely knew we were doing it. Buffett agreed to talk to Robin Leach in conjunction with the exhibit.” Actually Borsheim’s jewelry store in Omaha invited Lifestyles to ﬁlm a Patek Phillipe exhibition the Sunday before Berkshire Hathaway’s annual meeting. we didn’t even have a request to appear. with the wrong message. and Buffett was unaware that a show was planned about him. Buffett was trying to convey the message that property taxes in California were ﬂuky and unfair. It was. The story.30 WARREN BUFFETT SPEAKS “I was just as surprised as you were.” Buffett reportedly told friends.

I do not
. in verifying with him that what I’m about to recount is correct. Steiger Managing Editor The Wall Street Journal 200 Liberty Street New York. was seriously misleading in a way that caused far-reaching reverberations. He replied that his taping equipment was not working. carried a headline and opened with paragraphs devoted entirely to California taxes. 2003 Mr. New York 10281 Dear Mr. The article. featured on the Journal’s front page. Therefore. Steiger: The Wall Street Journal’s August 15 article about me.About Life 31 October 7. Paul E. For reasons that I will explain. I began by asking him to record the interview. That’s fair enough: Taxes were certainly to be a major issue in the campaign. In talking to your reporter Joe Hallinan. I could not write to you about this matter until now. based on an interview that I gave one of your reporters about my association with Arnold Schwarzenegger’s campaign. you will have to rely on his notes.

same ability to pay—is roughly ten times the rate on the ﬁrst house. carried taxes of $12. is one that I purchased in the mid-’90s.32 WARREN BUFFETT SPEAKS expect you to ﬁnd discrepancies. It has a market value of about $2 million and. located just in back of the ﬁrst.000). The second house.241 in 2002. $2. I was satisﬁed. $11. Residential property taxes in California are wildly capricious.000 (though it’s assessed at about $690. What I said in respect to property taxes was very speciﬁc. two in Laguna Beach and one in Omaha. given that he asked me several times to repeat key ﬁgures I presented. because of the limitations embodied in Proposition 13.401 in 2003 and $12. I pointed out to Joe that these ﬁgures mean that the tax rate on the second house—same neighborhood.264 in 2003 vs.481 in 2002. I gave him an example of three houses.877 in 2002. tied as they are to the date of purchase
.002 in 2003 vs. carried taxes of only $2. I then referenced my house in Omaha. based on our conversation. simply because of its later purchase. which I believe to be worth about $500. Taxes on it were $14. The ﬁrst Laguna Beach house is a property that I bought in the early 1970s. It has a current market value of about $4 million and. same owner. that Joe understood the two highly important but uncomplicated points my examples spoke to: 1.

2. and quote made it appear as if I was only talking about the differences in taxes between Omaha and California. Even so. this comment clearly applied to both observations regarding property taxes. the body of the story. Instead. that tells you. In the interview. Yet there was no mention in the story of my second house in Laguna nor any mention of the tax inequities within California. the headline. In the case of properties that a homeowner has held for a long time. you can draw certain conclusions from that. It’s difﬁcult to understand this omission. taxes are down 10%—you can draw certain conclusions from that. residential property tax rates in Omaha are far higher than in California. Imagine that a reporter were to ask a candidate about a ﬁscal problem and received this reply: “Spending is up 10%.About Life 33 rather than the value of the property or ﬁnancial circumstances of the owner. The severe failings in the article were compounded a few days later when the Journal’s editorial page made the mistake of relying on the accuracy and completeness
.” Give me an F for syntax. as the story reported: This property-tax illustration. I then said.” readers would be seriously misled.” If the reporter quoted only the taxchange portion on the sentence and followed it with “You can draw certain conclusions from that.

They. My sympathies are clearly with the “no-billionaire” family purchasing a $300. Though the editorial would have undoubtedly made many of the same points it did had the writer read a complete account of my views.34 WARREN BUFFETT SPEAKS of the Journal’s reporting. The Journal’s editorial page was not the only medium that drew incorrect and incomplete inferences from the story. expanding on some of his
.000 house in Chico today who faces real estate taxes materially higher than those borne by this non-resident billionaire on his $4 million house in Laguna. Buffett’s generosity with their cash ﬂow” would make no sense if the writer had understood I was criticizing the inequities within California. his analysis would have had to be at least somewhat different if he had been aware of both points I made. the statement in the editorial’s second paragraph that “no doubt the no-billionaire in Chico will appreciate Mr. The Omaha-Laguna comparison rocketed around the world accompanied by commentary that I was suggesting raising property taxes in California—with no mention at all that I was arguing they needed to be made more equitable. due to Proposition 13. When I subsequently explained to the Journal’s Kevin Helliker just how misleading the story had been. have been selected to subsidize me. our ofﬁce received an e-mail from Joe Hallinan suggesting that I “might be interested in doing another interview with us. For example.

In the talks I am periodically asked to give to journalism classes. as well. Because the Journal’s mischaracterization of my views has achieved such widespread publicity. I am planning to post this letter for an extended period on the Berkshire Hathaway website. Warren E. of course. Buffett
. This is the same point. Another interview.” It is ironic that the reporter mentioned “expanding” my views when he—or his editor—was the one who had truncated my views in such a misleading and unfair manner. If the Journal has any response to this letter.About Life 35 earlier points. that has deterred me from writing you. since—short of the Journal forthrightly acknowledging its original error—it would have appeared that I was scrambling to revise my statement to limit political damage to Arnold. would have compounded the problem. I will think of this also as a case study of how journalism can go wrong. Sincerely. not truncating it in any way. or otherwise talking about the tax issues. will present it in full. of course. until we reached a date when my doing so would not inﬂuence the election. I hope that you. I will be happy to publish it in full on our website and also distribute it to journalism students if I’m using the story as a bad example. If the Journal should make any use of this letter.

wrote down all of the qualities that he admired in other people and all the qualities he found objectionable. when he was 12 years old. Ben Graham. Buffett says. when you think about what’s going through your mind. You’re thinking about a whole lot of qualities of character.” 48 Character can be developed. who can throw a football 65 feet. You also have to choose another student to whom you will pay 10 percent of your earnings for life: “The interesting thing is. Imagine. You’re not thinking about who can jump 7 feet. that you are a student and that you may choose one other student in your class and thereafter be entitled to 10 percent of that student’s earnings for life.6 or jumping 7 feet. And he looked at that list and there wasn’t anything about being able to run the 100-yard dash in 9. who can recite pi to 300 digits. But there’s a catch.36 WARREN BUFFETT SPEAKS
CULTIVATE GOOD CHARACTER
“Chains of habit are too light to be felt until they are too heavy to be broken. My old boss. or whatever it might be. They were all things that were simply a matter of deciding whether you were going to be that kind of person or not. you’re not thinking about things that are impossible for you to achieve yourself. The truth is that every one of those qualities is obtainable.” 49
. They are largely a matter of habit.

Buffett says: “I’ve never had any self-doubt.” replied Buffett. I don’t think I ever doubted it for a minute.About Life 37 “Always hang around people better than you and you’ll ﬂoat up a little bit.”51 In a matter-of-fact way. “No. a friend asked if the company would be called Buffett & Son.” 52 “I always knew I was going to be rich. and I’ll get 20 percent of all proﬁts after that. All I want to do is hand in a scorecard when I come off the golf course. Hang around with the other kind and you start sliding down the pole.” 54
. “Buffett & Father.” 53 When 26-year-old Warren Buffett created his ﬁrst partnership in 1956. he told investors: “What I’ll do is form a partnership where I’ll manage the portfolio and have my money in there with you. And I won’t tell you what we own because that’s distracting. I don’t want you following me around and watching me shank a threeiron on this hole and leave a putt short on the next one.” 50
BELIEVE IN YOURSELF
When 20-year-old Buffett went to work at his father’s brokerage house in Omaha. I’ve never been discouraged. I’ll guarantee you a 5 percent return.

If others praise something I’ve done. “I keep an internal scoreboard.” 55 When asked how he has the conﬁdence to invest in companies that others shun: “In the end. he asked Benjamin Graham for a job (for no salary) at the GrahamNewman Co. I always believe my eyes rather than anything else.: “Ben made his customary calculation of value to price and said no. but I wouldn’t have been the most unpopular either. I was just sort of nothing. but I’m not satisﬁed.” 56
BUT DON’T GET TOO STUCK ON YOURSELF
Probably the majority of people felt like Buffett did in high school: “I would not have been the most popular guy in the class. I’m happy.” 57 When Buffett graduated from Columbia. the preceding is someone’s recollection
of what Buffett said.38 WARREN BUFFETT SPEAKS
NOTE: Apparently.” 58
. If I do something that others don’t like but I feel good about. Buffett did not guarantee a 5 percent return. The partnership gave the limited partners a preferential return that had to be achieved on a cumulative basis before Buffett earned anything. I feel unhappy.

Buffett said he wanted to thank his hair stylist. Before one game. slacks. and a blazer. they asked to remain anonymous.” 62 When the Omaha Press Club unveiled a caricature by artist James Horan. Zegnas sell for about $2. They just look cheap on me. He went to Italian-made Zegna suits. which was a little weak. in which the governor announced the winning numbers for a Nebraska state lottery and
NOTE:
. his wardrobe consultant.61 Upon induction to the Omaha Business Hall of Fame. Buffett started dressing up.” 59 Wounded by a journalist who said Buffett wore cheap suits.” 63 Buffett and the governor of Nebraska once performed a skit together.” 60 After years of usually wearing cotton shirts. After his pitch.About Life 39 For years. usually off the rack. and his personal trainer. he explained: “I buy expensive suits. Buffett said: “I looked up and saw these same kids erasing my signature. children asked for his autograph. but: “When they looked at their handiwork. Buffett laughed: “Almost anything beats looking in the mirror. Buffett threw the opening pitch at Omaha Royals games preceding the Berkshire Hathaway annual meetings.000.

I’ll buy a comb. himself a snappy dresser.” Buffett said. Among his champions. Ben Graham. author Phil Fisher. Buffett lists his father. pick out a few heroes.” 65 When a shareholder asked Buffett if he was aware of how popular he had become. as a folk hero.” 66
When it was suggested to Buffett that. He then added. There’s nothing like the right ones. “Buffett’s tailoring has caused a certain amount of amusement in the business world. Senator Barak Obama. some people watch his every move: “I watch my every move. and I’m not that impressed. and his mentor. Bill Gates. to the extent that you can. says. The governor asked Buffett what he would do with the windfall: “I think I’ll buy a second suit.” 64 Buffett’s business partner. Buffett replied: “Maybe I should tell my barber and we should save the clipings.40 WARREN BUFFETT SPEAKS Buffett dashed onto stage waving the winning stub. “And if I have enough left over.” 67
CHOOSE YOUR HEROES WELL
“You’re lucky in life if you have the right heroes. Howard. Charlie Munger. Why these people? 68
.” the excited Buffett stuttered. I advise all of you.

the blessings of liberty will be replaced by tyranny and coercion at home. The senior Buffett had strong and independent views of the role of the United States in the world. Howard was a wonderful husband and father. the crowd booed: “He could take stuff like that very well. In a speech on the House ﬂoor. Persuasion and example are the methods taught by the Carpenter of Nazareth. He never found it necessary to punish the children. and if we believe in Christianity.About Life 41
HOWARD HOMAN BUFFETT
“He taught me to do nothing that could [not] be put on the front page of a newspaper.” 70 Buffett recalls a hometown baseball game shortly after his father had cast an unpopular House of Representatives vote on a labor measure.” 72
.” 69 Buffett’s mother explained the relationship between father and son: “Warren and his father were always the best of friends.”71 Buffett’s father was a staunch Republican and a member of the John Birch Society. When Congressman Buffett was introduced. we should try to advance our ideals by his methods. I have never known a better human being than my dad. He didn’t expect the world to change overnight. If that attempt is made. His dad was Warren’s hero. Our Christian ideals cannot be exported to other lands by dollars and guns. Howard Buffett once said: “Even if it were desirable. America is not strong enough to police the world by military force. His method was to use reason and persuasion.

suppliers. .42 WARREN BUFFETT SPEAKS
Warren eventually abandoned Conservative politics: “I became a Democrat basically because I felt the Democrats were closer by a considerable margin to what I felt in the early ’60s about civil rights. but I probably vote more for Democrats than Republicans. . He has as much potential as anyone I’ve seen to have an important impact over his lifetime on the course that America takes.” 75
PHIL FISHER
One of the great original thinkers of modern investment management. I don’t vote the party line.” 74
SENATOR BARAK OBAMA
“I’ve get a conviction about him that I don’t get very often.” 77
. Fisher is the author of Common Stocks and Uncommon Proﬁts and Conservative Investors Sleep Well. . and I’m sort of a Democrat on the distribution side.” 73
“I’m sort of a Republican on the production side. customers to ﬁnd out how an industry or a company really operates. Buffett describes his own style as 85 percent Ben Graham and 15 percent Fisher:76 “From him [Fisher] I learned the value of the “scuttlebutt” approach: Go out and talk to competitors.

but I regard his business savvy as extraordinary.80
NOTE:
Rose Blumkin. he would have become the hotdog king of the world. He would be very good at my business.” 79
NOTE:
Buffett did bet on Gates twice and in a big way. (For more on that.
BILL GATES
“I’m not competent to judge his technical ability. Nobody has lost money doing that yet. First.
. If Bill had started a hotdog stand.” Buffett said.About Life 43
NOTE:
Fisher’s son Kenneth writes a column for Forbes
magazine. then.
he invited Gates to serve on Berkshire’s board of directors. turn to page 218. He will win in any game. but I wouldn’t be at his. More about them later. founder of the Nebraska Furniture
Mart. and all teachers rank high on Buffett’s list.” 78 As for the future of Gates and Microsoft in the shifting sands of computer software. he handed over the bulk of his wealth to the Bill and Melinda Gates Foundation. Buffett says: “I’d just bet on him.)
BENJAMIN GRAHAM
“Graham was the smartest man I ever knew.

but I have always had a suspicion that about 99 percent of it is in the telling and about 1 percent is in the drinking. I spent 6 percent of my net worth on it.” 81
In a CNBC interview. “Not to give you advice or anything. Six percent of his net worth would have been around $500 million. Rather than a balanced budget amendment. I don’t have it all on me right now!” 82
SHARE YOUR WISDOM
When Bill Gates proposed marriage to Melinda French. Buffett was asked: “You have about $15 billion in cash?” Buffett replied: “Well. he proposes a “3 percent solution”: 84
. who is known for his unabashed promotion of his own companies.44 WARREN BUFFETT SPEAKS
DODGE THE HYPE
“Maybe grapes from a little eight-acre vineyard in France are really the best in the whole world. a jewelry store owned by Berkshire.”83 Though only 37 years old at the time. “but when I bought an engagement ring for my wife in 1951. he ﬂew his betrothed to Omaha to buy an engagement ring at Borsheim’s.” said Buffett.
Buffett says that he has no political aspirations but that he can help elected ofﬁcials set better goals. Gates already was a multibillionaire.

Rather.About Life 45 “Enact a constitutional amendment stipulating that every sitting representative and senator becomes ineligible for election if in any year of his term our budget deﬁcit runs over 3 percent of the GDP [gross domestic product]. corporation.”
DISREGARD OLD AGE
“Retirement plans? About 5 to 10 years after I die. or country. it is a continuous increase in debt in relation to income that causes trouble.” This plan would serve the nation. Were this amendment passed. because: “It’s not debt per se that overwhelms an individual.” 86
.” Other measures to control the national debt have failed because voters bounce elected ofﬁcials who actually cut programs or increase taxes: “There simply aren’t enough saints available to staff a large institution that requires its members to voluntarily act against their own well-being. Buffett says.” 85 Buffett’s attitude about his age also applies to those with whom he works: “We take as our hero Methuselah. the interests of the nation and the personal interests of our legislators would instantly merge.

. Even though they’re rich. all you wish for is their immortality. to the board of directors.” 87 When the now-deceased Rose Blumkin hit 94. chief ﬁnancial ofﬁcer of Yahoo!.” 88 “We ﬁnd it hard to teach a new dog old tricks.46 WARREN BUFFETT SPEAKS Buffett compares the management at Coca-Cola to a winning team: “If you have the 1927 Yankees. Buffett said he was forced to scrap his mandatory retirementat-100 policy so that Mrs. We offer them immortality. He added both Bill Gates of Microsoft and Susan Decker. B could continue to manage the Nebraska Furniture Mart. “My god! Good managers are so scarce I can’t afford the luxury of letting them go just because they’ve added a year to their age. they love what they do.” 89 In recent years Buffett developed a new appreciation for youth. And nothing ever happens to our managers. from the electric golf cart she steered everywhere. But we haven’t had lots of problems with people who hit the ball out of the park year after year. now owned by Berkshire. Buffett also launched a search for a loyal young genius to help manage Berkshire’s investments and possibly become Buffett’s successor.

‘You want to sell me your store?’ And I say. I’d want to be in business with her. founded the massive and modern Nebraska Furniture Mart. 4-foot-10-inch.’ He says. B’s business motto was “Sell cheap and tell the truth. as she was called. Mrs. but Mrs. ‘I trust you more. Buffett often described her common sense and work ethic when talking to graduate students and others studying business principles. Rose Blumkin was an Omaha landmark. he [Buffett] walks in and says to me. ‘$60 million.” 90 “If she ran a popcorn stand. who never attended a day of school.’ He goes to the ofﬁce and brings back a check.About Life 47
ROSE BLUMKIN. MATRIARCH OF THE NEBRASKA FURNITURE MART
To Warren Buffett. the store was actually worth $85 million. ‘You are crazy. ‘Yeah. immigrated from Russia alone at age 23 to join her husband in the United States. Mrs. I say. Mrs. B told the story this way: “One day. He recommended that visitors drop by and see her when they were in town. Where are your lawyers? Where are your accountants?’ He says.’ ” 92 Later. ‘How much do you want?’ I say.91 Mrs.
. B did not raise the price. B. B. when an inventory was taken. He bought the Nebraska Furniture Mart as a 53rd birthday present to himself.” Buffett said.

” Mrs. no audits.400. “She left the Nebraska Furniture Mart in a major-league snit May 3. The transaction was based on a one-page contract.” 97
. B when he approached her. I bet you he knew. I made him $15 million every year. however. “I didn’t open this store for money. but I was surprised.95 Sadly. I opened it for revenge. The investment has been hugely successful.94 “I would rate him the best. B was soon bored sitting at home and. were undercutting her authority in the carpet department.” 93 Buffett had learned of Mrs. and the Omaha World-Herald reported every lurid detail. and when I disagreed with my grandkids. She had no qualms doing this. “Warren Buffett is not my friend. hoping not to offend Mrs. But he studies. a dispute erupted between Mrs. B called one of her grandsons a “Hitler. company executives. in 1989. B’s interest in selling the business and discussed the idea with her son.48 WARREN BUFFETT SPEAKS
“I wouldn’t go back on my word. He never thought a minute. he didn’t stand up for me.” Mrs. and no inventories. B said about Buffett. 1989. B and her family. opened the six-acre Furniture Warehouse across the street from the Nebraska Furniture Mart.” 96 The entire family was aghast when Mrs.” As for the success of her new business. The total legal and accounting fees were $1. contending that grandsons Ronald and Irvin Blumkin. The feud was hot news in Omaha.

” Mrs. “I expect maybe too much. putting her back in the fold. B for a lifetime noncompete clause.” the 62-year-old Buffett said. B continued to operate her carpet business within the store. “So I did. Buffett sang the following tribute to Rose Blumkin—to the tune of “Battle Hymn of the Republic”: Oh. But we found it’s not so easy When your network’s number three.” Buffett said. remedying a ﬂaw in the Nebraska Furniture Mart purchase agreement of 10 years earlier. No credit.About Life 49
Mrs.
. we thought we’d make a bundle When we purchased ABC. As part of the deal. Running the warehouse was a strain. B. B later made peace with her family and forgave Buffett.99 At the Omaha Press Club show in 1987. And they paid cash. he asked Mrs.94 million. and she sold because her son begged her not to work so hard. B and her progeny.98 Buffett admitted learning an important lesson from the episode. The second time.” she said. Mrs. So now the load at Berkshire Must be borne by Mrs. I love my kids. “I’d rather wrestle grizzlies than compete with Mrs. “I was young and inexperienced. She sold her new store and its 11-acre site to the Nebraska Furniture Mart for $4. Her cart is rolling on. Five million dollars. B said of the family fracas.

B will save me. If we get rich. But the secret is I’m not the wheel But merely just a cog. Without the kiss of Mrs. Her cart is roling on. Verse 2 Ideas ﬂop and stocks may drop But never do I pale. For no matter what my screwups. Her cart is rolling on. B. Verse 3 Forbes may think I’m brilliant When they make their annual log. Mrs. it must be through ya. glory.
.100 Rose Blumkin died in 1998 at age 104. Her cart is rolling on.50 WARREN BUFFETT SPEAKS
Chorus: Glory. It’s impossible to fail. She’ll just throw another sale. I’d always be a frog. hallelujah Keep those buyers coming to ya.

” 1 How does Buffett deﬁne friendship? “I remember asking that question of a woman who had survived Auschwitz. She said her test was. I like them. admire them. as it works out. There are no shells round them.
51
. ‘They have their own club.’ Now. ‘Would they hide me?’ ” 2
GO TO BAT FOR YOUR PALS
“I ate lunch at the Omaha Club—that’s the downtown club—and I noticed there weren’t any Jews. there are Jewish families that have been in Omaha a hundred years.About Friends
KNOW WHAT FRIENDSHIP IS
“I have a half dozen close friends. they have contributed to the community all the time. half female. Half male. I was told.

Universe. and yet they can’t join a club that John Jones. I got two or three of the Jewish club members to apply to the Omaha Club. This was a surprise move for Buffett. It is critical to the rest of the nation that California’s economic crisis be solved. They were a little put back and confused. it took me four months. Buffett explained: “I have known Arnold for years and know he’ll be a great governor.” 3
GUIDING GOVERNOR SCHWARZENEGGER
Buffett made a political splash in 2003 when he became a volunteer ﬁnancial adviser to the Republican. kitsch actor Arnold Schwarzenegger in his bid to become governor of California. So I joined the Jewish club. Then I went back to the Omaha Club and told them that the Jewish club wasn’t totally Jewish any more. and I think Arnold will get that job done. Now we’ve got the thing cracked. who usually votes for Democrats. the new middle-rank Union Paciﬁc man. California had a $38 billion budget deﬁcit and an energy crisis created partly by market manipulation by Enron. That is hardly fair. and I had to do some convincing. after all. joins as soon as he’s transferred here. He did. At the time. former Mr.” 4
.52 WARREN BUFFETT SPEAKS they have helped build Omaha as much as anybody. support Massachusetts senator John Kerry in the 2000 presidential race.

” 5 “Warren is helping me bring together a world-class team to assist me in addressing the problems and challenges facing businesses. such as a misleading story that appeared in the Wall Street Journal (see pages 30–35). Workers’ Comp costs to insurers had more than tripled.” said Schwarzenegger.7
. Maria [Shriver— Schwarzenegger’s wife] can’t tell us apart. and job creators in California. Charlie Munger. Under laws he pushed through. Workers’ Comp abuses had long been the curse of the insurance industry.About Friends 53 Then the playful Buffett kicked in: “Arnold was looking for a double. costs to insurers fell by $8. investors. supported Schwarzenegger.1 billion between 2003 and 2006. in part because of his promise to enact Workers’ Compensation reform. Between 1997 and 2003.6 His partnership with his old friend Buffett was hailed as a masterstroke that set him apart from President George W. Despite glitches. Schwarzenegger got elected and won a second term in 2006. Premium rates to businesses dropped by 47 percent. Buffett and his partner. Schwarzenegger made Workers’ Comp the cornerstone of his ﬁrst six months in ofﬁce. Bush. who wasn’t always popular in California. Yet the alliance soon ran into trouble.

The Buffett Group continues to gather every other year: “They were moderately well-to-do then. worked in Buffett’s grandfather Ernest’s grocery store. Munger grew up in Omaha and. Munger. Ben Graham. including me (and later Ernest’s grandson Warren). which caused many of the young workers.” Munger said.
NOTE:
CHARLIE MUNGER
Charles T. It’s just so simple. 83. to look for an easier career and to be cheerful upon ﬁnding disadvantages therein. They haven’t invented Federal Express or anything like that. where they sought advice on the stock market from their former Columbia professor. is Buffett’s combination best friend / business partner. as a teenager. “The Buffett family store provided a very desirable introduction of business. Ben put it all down. They just set one foot in front of the other. “It required hard. Like Buffett.54 WARREN BUFFETT SPEAKS
BUILD LIFELONG FRIENDSHIPS
In 1968. but the party stayed at the elegant beachfront Hotel del Coronado.” 8 Frugal Buffett originally suggested they ﬁnd a Holiday Inn.”9
. California. accurate work over long hours. Buffett and a group of his friends traveled to Coronado. They are all rich now.

” To be sure.12 Buffett further claims: “Charlie and I can handle a four-page memo over the phone with three grunts. “Charlie is not paid by the word. Munger was admitted to Harvard Law School even though he didn’t have an undergraduate degree. Munger gives money liberally to charitable causes. “I have been shaped tremendously by Charlie. says Buffett. including the British antihunger group. but that’s just talk. a Democrat. Munger is better.” explains Buffett. Munger has mastered short answers. isn’t a particular fan of the Benjamin Graham investment philosophy. has made charitable contributions but hoped to rely on his late wife.”13 Buffett describes his friend as his junior partner in good years and his senior partner in bad years.”11 A friend of the partners says that while Buffett is good at saying no. Oxfam. Munger has been called the Buffett doppelgänger. Buffett calls his friend “the abominable no man. which is one of the reasons the two didn’t meet until they were adults.”10 Munger explains their synergy: “Everybody engaged in complicated work needs colleagues. Munger. Susie. And yet. Buffett.About Friends 55
Munger is about seven years older than Buffett. He doesn’t
. to handle most of that work. Buffett was rejected when he applied to Harvard Business School. A Republican. Just the discipline of having to put your thoughts in order with somebody else is a very useful thing. very rational. unlike Buffett. though the description has its limits.14 “Charlie is rational.

You’re paying less to brokers.”20
Munger wants more than rosy promises before Berkshire Hathaway invests in a company. he didn’t scream at me. Projections won’t do:
.56 WARREN BUFFETT SPEAKS
have his ego wrapped up in the business the way I do.”18 Munger says he can’t recall Buffett ever getting angry: “Even when I took him ﬁshing in Minnesota and upset the boat and we had to swim to shore. Essentially. though occasional disagreements. we have never had an argument.”15 Furthermore: “Charlie has the best 30-second mind in the world. And since he’s articulate.”17 Munger says Buffett is the same person in private that he is in public: “One of the reasons Warren is so cheerful is that he doesn’t have to remember his lines.”16 Buffett says it isn’t necessary to be a rocket scientist to be a successful investor.”19 When he gets around to talking. Munger has good advice for investors: “There are huge advantages for an individual to get into a position where you make a few great investments and just sit back. He sees the essence of everything before you even ﬁnish the sentence. He goes from A to Z in one move. you can see the damn brain working. You’re listening to less nonsense. Warren is plenty smart: “His brain is a superbly rational mechanism. though in Munger’s estimation. but he understands it perfectly.

and it’s rising due to a downpour. but the worst kind because
21
the
forecaster
often
believes
them
himself. although not intentional ones. and [their] apparent precision makes them fallacious. nobody has ever accused me of being humble.”23 Munger say he and Buffett think so much alike that it’s spooky.About Friends 57
“They are put together by people who have an interest in a particular outcome.’ Projections in America are often lies. But you think it’s you. ‘A mine is a hole in the ground owned by a liar. have a subconscious bias. however. Munger says. not the pond. go to investor’s heads: “If you’re a duck on a pond. I don’t think I quite got my full share. They remind me of Mark Twain’s saying.”25
. When asked if he could play the piano: “I don’t know.24 Some of the differences between them. Although humility is a trait I much admire. you start going up in the world. I’ve never tried.”22 Munger isn’t above a bit of silliness. are striking: “In my whole life.”
Bull markets.

About Family
DON’T SPOIL YOUR KIDS
First of all a clariﬁcation—Warren Buffett and musician Jimmy Buffett of “Margaritaville” fame probably are not related. 58
. If there is a kinship. was battling mouth cancer when she suddenly died of a stroke. Astrid Menks. Warren and his companion. Susie. it’s buried so deep in the bloodline that nobody can ﬁnd it. Two years later. There now is a clearer picture of how the Buffett offspring conduct themselves. each of his children has progressively deﬁned and strengthened her or his own role in the world. And in a seemingly natural way. His wife. But there is one connection—Jimmy is a Berkshire investor. One of the great transformations in Buffett’s life over the past decade has occurred within his family. were married. considering that they are surely among the most privileged people on earth.

” “All these people who think that food stamps are debilitating and lead to a cycle of poverty.” 2 Buffett calls inherited wealth “food stamps for the rich. Dynastic megawealth would further tilt the playing ﬁeld that we ought to be trying instead to level. I will try. But I would argue that when your kids have all the advantages anyway.About Family 59 While the younger Buffetts cannot be accurately described in simple terms. and Peter is the musical. including what they learn at home—I would say it’s neither right nor rational to be ﬂooding them with money. anybody who doesn’t think my Dad is smart—as soon as he started
. Munger explains Buffett’s attitude regarding family: “Warren is just as tough on his children as he is on his employees. Howard is the ﬁscally conservative international environmentalist and Berkshire heir apparent.” 1 “Our kids are great. in terms of how they grow up and the opportunities they have for education. creative dreamer. Suzie tends to keep the Nebraska home ﬁres burning. He doesn’t believe that if you love somebody the way to do him good is to give him something he’s not entitled to. And that’s part of the Buffett personality. they’re the same ones who go out and want to leave a ton of money to their kids.” 3 Eldest son Howard explained: “Listen.

000 worth of stock in companies he found promising. 1997).” 7 Buffett believes his child-rearing practices brought good results: “They’ve all gone their own ways to accomplish a lot.” 6 Suzie Buffett had a response: “The truth is. I couldn’t get three of those melons to line up. but they’re not going to live the life of the superrich. it would be insane to leave us that much money. and they don’t expect to just be some rich guy’s kid.60 WARREN BUFFETT SPEAKS giving us allowance. in that they don’t feel obliged to kowtow to me in any way.” 5 In her book Buffettology (Scribner. he put a slot machine up in the attic. In 10 years. Buffett conceded: “My kids will be glad to come and rebut this next week. and they are all independent. After explaining his family philosophy to a group of college students. and we’d go up there. They all function well.” 8
.” 4 Rumors that Buffett cut his children out of his will are incorrect: “They’ve gotten gifts right along. Mary Buffett described Christmas mornings when Warren stuffed stockings with $10. It just would be. They’re productive. and he’d win every penny back of the allowance. I think they probably feel pretty good about how they’ve been brought up. Father Buffett urged the family to use the shares wisely to build their own investment portfolios.

Howie met his future wife. . he received a delayed.About Family 61 When Buffett’s son Howard ran for county commissioner in Omaha. out-of-the-blue inheritance of a few million dollars. While it was peanuts compared to the estate his father had built and relative to the success he himself
. Buffett gave Howard a break when. much to Peter Kiewit Jr. voters falsely assumed that with his surname. his campaign would be well ﬁnanced. . after he dropped out of the University of California-Irvine. On the contrary.” said the interviewer.” 9 Howard was elected and served as Douglas County Commissioner from 1989 to 1992. “As we recall.’s surprise some years after his father’s death. Devon. superinvestor Walter Schloss: “We understand that Peter Kiewit .
NOTE:
This little item was found in an Outstanding Investor Digest interview with Buffett’s friend. had a father who felt the same way as Buffett does about the evils of inherited wealth. Warren got him a job at See’s Candy. Buffett said: “I asked him to spell his name in lowercase letters so that everyone would realize that he was the Buffett without the capital. There.

. doing some ﬁxed-income arbitrage.62 WARREN BUFFETT SPEAKS achieved.
It is highly likely that the Buffett children someday will also inherit from their father. those held outside Berkshire Hathaway. I’ve made a few decent investments with that money in the years since— taking positions that were two small for Berkshire. Buffett (Little Suzie)
Suzie Junior was a typical child in many ways: “When I was little. Buffett’s ofﬁces are in Kiewit Plaza. “[ W ]ay back when I was buying Berkshire.” 11
THE BUFFETT CHILDREN
Susan A. Well. I had less than $1 million in outside cash. he said it made him feel like his father was extending his approval from the grave. have also compounded. and selling my interest in a bank that was split off from Berkshire.’”12 Little did she suspect that there would be a real pot of gold at the end of the rainbow. although Buffett’s true net worth is not publicly known. he was Omaha’s wealthiest and most prominent citizen. since his personal investments. every night my Dad rocked me to sleep and sang ‘Somewhere over the Rainbow.” 10
NOTE: Until Peter Kiewit’s death.

Nevertheless. playing bridge. especially when she was asked to contribute to charitable causes. and they thought he checked alarm systems. quilt.” 13 Even after Buffett became famous. and talking with us. “What makes my Dad happy is hanging around the house. and knit. He doesn’t spend anything.”15 Suzie.”14 As for his attitude about investing.About Family 63 Certainly she did not realize she had an unusual father: “For years I didn’t even know what he did. lives in Omaha only blocks from her father. Suzie has been involved with various small businesses. “They don’t understand that when I write my Dad a
. He’ll drive his car and wear his clothes until they fall apart. including a knitting shop and an organization that provides Berkshire logo wear. He’s about as normal as you can get. She loves to sew. “The whole thing is a big game to him. Suzie said he remained an everyday guy. 54 years old and the divorced mother of two grown children. That’s the way it is in the Buffett household. she stands in line at the service desk like all the other customers. They asked me at school what he did. Suzie was frustrated by the mistaken impression people had of her personal wealth. when Suzie goes to Borsheim’s jewelry store to make an exchange. Although she usually is described as a homemaker. For years. reading. She often helps her father with corporate entertainment and accompanies him on his travels. Dollars are the mark of the winner. and I said he was a security analyst.

000 per year to it so that his children and his companion.”16 That situation gradually changed. that means Suzie eventually will have more than $1. Warren then gifted each of his children’s trusts with 350. ﬁrst when Buffett established the Sherwood Trust (named after Robin Hood’s forest) and deposited $500. Finally. Astrid Menks. Based on the June 2006 share price of $3.5 billion to give away. If I had $2.” 17 Suzie’s foundation is modest in comparison to the Gates Foundation. Buffett Foundation had assets of $118 million in 2006. Buffett made the children’s foundations even larger. I’d pay off my credit card bill. The Susan A. Your thinking has been good. could make their own contributions without checking in with him.64 WARREN BUFFETT SPEAKS check for $20.047. he cashes it. and your actions have been effective in helping those less fortunate than our family have been. In 2006.000 Berkshire Hathaway B shares. Warren and his late wife established charitable trusts for each of their children.
.000 now.’s estate. Her father wrote to Suzie when he enlarged the trust: “I am enormously proud of the way in which you have managed the resources of the foundation that Mom and I established for you. The trust eventually will get another $50 billion from Susie Sr.

the Special Olympics. Christian Urban Education.” 18 How will Suzie use the gift? She most likely will continue with the type of volunteer work she’s always done. and his teacher
. Buffett said he had no such trouble when putting money in his children’s foundations. Like her parents. She serves on the board of Girls Inc.
Howard Graham Buffett
Buffett’s ﬁrst son is named for two important role models in Warren’s life: his father. I just signed ‘Dad. Cecilia’s elementary school. Countryside Community Church. Buffett recalled the story of how Ted Turner trembled when he gave a large portion of his net worth to the United Nations. Suzie has funded ceiling repairs at St.’ ” Buffett was glad to let his children make their own decisions about the money: “I think their judgment above the ground is going to be a lot better than mine six feet below the ground. and foster-care grants. “It’s easy to sign. Howard. Suzie led the effort to create the Rose Blumkin Theater in downtown Omaha.About Family 65 When making the donations to his children. Focusing her attention mainly on Nebraska. she supports reproductive rights and family planning organizations. such as Planned Parenthood of Nebraska-Council Bluffs.

He is the man that shareholders watch. He formerly served on the board of Archer Daniels Midland (ADM). A true midwesterner. and similar equipment. Howard has been prepping for the day when he carries his father’s ﬂag. Illinois. an Omaha-based corporation that makes agricultural irrigation systems. but it also implies high expectations. Not only does Howard’s name signify the affection and the respect Warren had for two remarkable men. Howard is the only one of the Buffett children to serve on the Berkshire board of directors. Howard since has resigned from the Coca-Cola board.. Clearly. Currently. Devon. Howard nonetheless is the nearest thing to a successor that Warren has. more important. He worked at ConAgra Foods as vice president and assistant to the chairman and now sits on the ConAgra board of directors.. he is chairman of Lindsay Manufacturing Co.
. leaving after a price-ﬁxing scandal that did not involve him. For a while he replaced his father on the board of CocaCola Enterprises Inc.66 WARREN BUFFETT SPEAKS and mentor. and. a company in which Berkshire has large and neigh onto permanent holdings. A college dropout like his brother and sister. controls. Howard and his wife. he has been tagged to become chairman of Berkshire when Warren can no longer serve. Benjamin Graham. and their ﬁve children live on their 850-acre corn and soy bean farm near Decatur.

however. Howard distributed $6 million to charitable organizations. He helped establish the South Africa–based Nature Conservation Trust and is on the board of the Cougar Fund. which protects mountain lions in the United States. Each year. While in the past his passion has been saving wild creatures such as cheetahs.000 National Geographic/Buffett award is presented to someone who has advanced the understanding and practice of conservation in southern Africa and East Africa. “Even though Howard Buffet is supposed to be a Republican. The Howard Buffett Foundation was established in 1999 and had $130 million in assets at the time of his father’s pledge of more than $1 billion in 2006. for example. Howard comes alive when he talks about conservation and wildlife.”19 Most of Howard’s charitable giving goes to the environment. the $25. it does not appear that his own Howard G. Mostly. Buffett Foundation funds any Republican or conservative causes. and he has published half a dozen photography books. bald eagles. and
. His nature photographs have appeared in National Geographic. In 2005. The settlement of his mother’s estate will boost the foundation even more. Howard focuses on international rather than domestic causes.About Family 67 Howie Buffett’s claim that he is a Republican causes some conservatives to choke on pretzels. an amount that could explode to annual contributions of more than $55 million. African gorillas.

he has produced music that best can be explained as energetic. and Hollywood Records. His production Spirit. ﬂuid. His attention has moved to human trafﬁcking and to the people in areas where plants. Epic. animals. including the U. Peter. Peter’s ﬁrst
./Mexico border and the African nation of Darfur: “I ended up seeing that you can’t do anything in conservation work unless you take care of human issues ﬁrst. aired as a public television fundraiser and was heard at the opening of the Smithsonian’s Native American Museum in Washington. this is shifting. most notably ﬁlm scores and commercials. took his mother’s musical talent and revved it up.S. when they moved to New York. and forward moving. He and his second wife. lived in Milwaukee until 2005.” Howard explained. He’s a keyboardist and composer of New Age music.’ ” 20
Peter Buffett
The youngest and hippest of the Buffett children. It has been described as having catlike qualities. ‘ You’re not going to get someone to starve to save a tree. “A friend of mine once said. 49.C.68 WARREN BUFFETT SPEAKS pandas in China. and the environment are under stress. and Peter admits to composing music with a cat wandering around his studio. inspired by Native American music and dancing and performed along with native talent. D. Under contracts to Narada. He created the ﬁre song for Dances with Wolves and songs for The Scarlet Letter. Jennifer.

2006). administrative expenses for NoVo in 2005 were only $308. both Peter and Jennifer work 30 hours each week for NoVo. One small grant helped a Canadian Indian tribe get back a totem pole that had made its way to Sweden. Peter’s and Howard’s foundations join forces to present a deserving Native American with the $25.About Family 69 wife.7 million in grants to 88 different charities. Peter’s NoVo is getting $50 million from his mother’s estate. although it will be 20 years before the foundation receives all the money it has coming. In the Milwaukee area. While Warren’s donations are designated for charitable causes. relatively small for a foundation of its size. coauthored (with David Clark) the books Buffettology (Scribner. for the Latin word meaning “to change. Peter’s grants could nearly double. With his father’s 2006 $1 million pledge. 1997) and The Tao of Warren Buffett (Scribner. Peter and Jennifer contributed $10.000. Despite their salaries. In 2006. Peter started his charitable work with his Spirit Foundation but later renamed it NoVo. where Jennifer (Heils) comes from an old-line industrial family. invent. Mary. alter. the
.498.” Like the other Buffett foundations. based on investing tips she picked up as a member of the Buffett family. for which they receive annual incomes of $40.000 Buffett Award for Indigenous Leadership. with an emphasis on Native American causes. Each year.

WHAT OTHERS SAY ABOUT WARREN BUFFETT
GOVERNOR ARNOLD SCHWARZENEGGER
“Warren has a common sense approach to business issues and an integrity that is unmatched. but nothing upsets him like losing money—he loves winning. of course.000 with Buffett in the 1950s.” 22
. That’s the same way I want to approach governing. Warren always tells it the way it is. and access to family planning for those with low incomes. early childhood education. Like other Buffett family trusts. among other things. an organization that. but to accumulate it. put pressure on Home Depot to stop selling wood products from endangered forests.” An early investor. NoVo took a lot of ﬂak from conservatives for helping fund the Rainforest Action Network. He loves the game. NoVo’s work doesn’t please everyone. “Warren may seem easygoing.70 WARREN BUFFETT SPEAKS couple has focused on child care centers. he placed just over $10.” 21
“DOC” WILLIAM ANGLE
Doc Angle was one of Omaha’s “Buffett millionaires. By the early 1990s. but his family still owns shares. that investment had grown to more than $100 million. Angle died several years ago. The end is always the money—not to spend it.

Schloss then left to open his own investment ﬁrm.” 23
As to the high share price of Berkshire Hathaway stock. It was great. “People do not take into consideration the market value of a company they’re buying. Schloss says it’s far smarter to multiply the number of Berkshire shares outstanding by the share price. But apparently he was shy when he was young and decided that he wanted to overcome it. He was the youngest person there. “I saw him in Omaha back in 1961 or 1962 when he got up before a Rotary Club and gave a brilliant speech culminating in asking for money. very funny. . They just look at the price per share rather than the value of the company. Buffett has called him a “superinvestor of Graham & Doddsville. .” 24
. the two worked together at Graham-Newman Co. So he went to the Dale Carnegie course. and it was very.” Schloss recalled the young Buffett: “One of the reasons why Warren is such an attractive personality is that he has such a great sense of humor and all those terriﬁc stories. . then compare that to other companies of similar size in terms of revenues and assets. Later.About Family 71
WALTER SCHLOSS
Buffett met Walter Schloss when they both were students at Columbia University. I wish I had a tape recorder.

BILL GATES. Gates balked. He proved that in General Foods. He particularly enjoyed tales describing common opinions that are completely mistaken. thinking he had little to say to a man who did nothing but invest all day long. also would attend. Warren’s made a mistake this time. former publisher of the Washington Post. Of Buffett. Warren and Susan Buffett joined
. throaty chuckle when he told stories of this sort. ‘Well. I said to myself. mostly coffee. it was about $60 when I noticed the transaction. it went to $120 . When Gates and Buffett met. WORLD’S GREATEST ENTREPRENEUR
Gates’s mother invited him to a day-long picnic at which she planned to introduce her son to Buffett. he said: “He’s a friend of mine. ha. Right up to his death. 1927).72 WARREN BUFFETT SPEAKS
PHIL CARRET
Carret was one of the successful long-term investors described by John Train in The New Money Masters. . later. they fell into conversation and soon became buddies.)” 25 Carret’s book The Art of Speculation (Barron’s. his rival as the wealthiest person in the United States. When Berkshire Hathaway bought the stock. It was a stodgy company. . Buffett attended Gates’s wedding in Hawaii. He decided to go when he heard that Katharine Graham. ha!’ (Carret had a deep. Carret seldom missed Berkshire’s annual meeting. He’s smarter than I am. is considered a classic. In a matter of months.

“It wasn’t immediately evident that because of the clever selection of numbers for the dice.About Family 73
Gates on a tour of China. Likewise. Die B would beat C with the same frequency. Though Gates describes their talks as “candid and not at all adversarial. This suggestion instantly roused Gates’s curiosity. but he is a cheerful sort of vulture. AUTHOR OF THE NEW MONEY MASTERS
Said Train of Buffett. They would bet on who would roll the highest number most often. die D would beat A just as often. using a set of four unusual dice with a combination of numbers from 0 to 12 on the sides. then discard the other two. “Professionally. too.” Gates said. “The mathematical principle of transivity—that if A beats B and B beats C. after which he demanded that Buffett choose ﬁrst. And improbable as it sounds.”27
. Assuming dies were rerolled.” they do “joust now and then” over mathematics. Gates says Buffett once challenged him to a game of dice. then A beats C—did not apply.” 26
JOHN TRAIN. each of the four dice could be beaten by one of the others: Die A would beat B an average of 11 out of every 17 rolls— almost two-thirds of the time. Buffett suggested that each of them choose one of the dice. C would beat D 11/17 of the time. he is in the vulture business. Buffett said Gates could pick his die ﬁrst. they were nontransitive. He asked to examine the dice.

we heaped abuse on him and tried to cajole him— after all it was only $10. “Well. Eckhart applauded Buffett for taking responsibility: “Gordon Gekko and Sherman McCoy are alive and well on Wall Street. FORMER CHAIRMAN OF GEICO
Byrne and a group of golﬁng buddies were on an outing at Pebble Beach. WRITER (AND DAUGHTER OF KATHERINE GRAHAM)
“I think the secret of his success is his undiminished curiosity. Buffett.” 31
IRVING KAHN. HEAD OF SEE’S CANDY
“When I talk to him.” Byrne said.” 30
DENNIS ECKART. California. Mr. “But he said he thought it over and decided it wasn’t a good bet for him. too.74 WARREN BUFFETT SPEAKS
JACK BYRNE. get in there and kick some butt. He ﬁrst met Buffett
. you’d probably be undisciplined on the large things. always positive.” 29
CHUCK HUGGINS. OHIO CONGRESSMAN
At a 1991 Congressional hearing on the Salomon government securities trading incident. he’s always up. NEW YORK INVESTMENT MANAGER
Kahn served for many years as Ben Graham’s classroom assistant at Columbia University. Everyone but Buffett agreed to the wager. He said if you let yourself be undisciplined on the small things.000 that he couldn’t score a hole in one over the next three days. when the group playfully offered Buffett a bet: his $10 against their $20.”28
LALLY WEYMOUTH.

2 percent of the company. who speaks tenderly of his late wife. we get the Warren Buffett we demand: “Warren is a hero. He has tremendous energy. Buffett this way: “She sort of roams. OMAHA
Maybe. or $3 billion worth of shares. Abbott suggests. OWNER OF THE FRENCH CAFE. “He was much the same as he is now. Susie served on the board of Berkshire Hathaway and held 2. in her own name. once described Susan T. and people like their myths neat and uncomplicated.” 35 Even though Warren and Susie had lived apart since 1977 when she moved to San Francisco.” 33
ANTHONY ABBOTT. He was very ambitious about making money. cocky young guy—he was always busy on his own. But nothing could be further from the truth.” 34
WORK THINGS OUT WITH YOUR WIFE
Buffett.” 32
SWOOZIE KURTZ. Of course. none of this is uncomplicated. but he was a brash. ACTRESS (AND DISTANT RELATIVE AND FRIEND)
“People still think Warren is this bumpkin from Omaha. He could wear you out talking to you.
. And he’d just as soon let them think that. they never divorced and often traveled and attended family events together. He’s an enormously sophisticated man.About Family 75
there. She’s a free spirit.

He seemed to realize that all things are ﬂeeting. 2004. She told a reporter: “I’m really proud of myself.” 38 Family friend Eunice Denenberg saw Susie Buffett this way: “Susie is one of those old-fashioned good
. his work life. Susie was diagnosed with mouth cancer and had been treated by surgery and radiation. even himself. encouraged her: “It was Warren. Warren was with her in the hospital when she died. On July 29.
Around the time her youngest child was graduating from high school. and his afterlife. And he wants me to stay alive.” 37 And what was Buffett’s motive? “Warren understands me. He’s the one. you’re like somebody who has lost his job after 23 years. Because there’s nothing I would be more vulnerable about trying than singing. Susie Buffett launched a nightclub singing career. But I was scared to death.” 36 Her husband. Susie suffered a stroke. you do. He knew. Now what are you going to do?’ He knew I wanted to sing. Susie said. ‘Susie. If you love someone. Susie’s death changed everything for Buffett. He then began a process of change that altered his daily life. I can’t believe I did. I’m so proud that I did it. Nothing. He said to me.76 WARREN BUFFETT SPEAKS In 2003. while she and Warren were visiting friends in Cody. Wyoming.

which he expected Susie to direct. He also gave some money to his children’s foundations. soon became Warren’s companion and housekeeper. The foundation will receive 5 percent of the shares until they are gone. he came up with a better idea. an attractive blonde. In her honor.) In the meantime. After her death. Buffett Foundation and contributed about $3 billion in the form of Berkshire Hathaway B shares to it.” 39 The story goes that Warren was so sad after Susie left Omaha that she contacted her friend Astrid Menks and asked her to go cook him some soup or something and cheer him up. They lived together for 25 years and were married two and a half years after Susie died. ( You can read more about his gifts in the pages ahead. Susie expressed a simple life philosophy:
. making it by far the world’s largest and most inﬂuential charitable organization. but he turned the largest portion over to the Bill and Melinda Gates Foundation. On that show. he renamed the foundation as the Susan T. which took the world completely by surprise.About Family 77 people that lots of folks today don’t think exist. the world joined Warren in mourning the loss of his wife. his fortune would go to the Buffett Foundation. So they attribute some of their own baser behavior to her because it bothers them. Buffett had always said that on his passing. whom many felt they knew following a Charlie Rose Public Television interview. Astrid.

How to Dismantle an Atomic Bomb.” she is reported to have replied: “Look. BUFFETT’S SECOND WIFE
Neither Astrid Menks nor Buffett discussed their relationship much. and I wouldn’t change anything. Back when she was still Buffett’s housekeeper. and don’t be attached to the results. listen hard. singing “Forever Young” and “All I Want Is You. Menks said: “I have the best of all worlds. I’m no bimbo. “If you knew everybody well.
ASTRID MENKS. don’t lie. I’ve been with Warren for 13 years [since 1978]. He thanked her for her contributions in the liner notes of his 2004 CD. you’d understand it quite well.6 billion.78 WARREN BUFFETT SPEAKS “Show up.40 She left an estate valued at $2. The rock singer Bono performed at her funeral.” As to a reporter who attempted to demean her by referring to her as a “former waitress” or “supper club hostess.” 41 Buffett said. though Buffett admits the triangular arrangement with his wife Susan was unusual. I don’t want to be lumped in with those kinds of women. do your best.” 42
.” Susan Buffett was 72 when she died and was the seventeenth-richest woman in the world. and I’m no airhead.” Bono had gotten to know Susie through her charitable work.

THE CONTROVERSIAL SUSAN T. picketers pace in front of the meeting hall and again at Gorat’s
.. Warren selected it at Borsheim’s Fine Jewelry (owned by Berkshire). After formalizing Warren and Astrid’s 20-year relationship. Warren’s seventy-sixth birthday. It was held at the home of Warren’s daughter and performed by a local judge. he would wed Astrid Menks. and the story that followed did not reﬂect her feelings. It informed them that he would be in the ofﬁce until midafternoon. At 6 P. just as she would any other woman working for a living. With the help of his daughter Suzie.M. the wedding party celebrated with dinner at Boneﬁsh Grill in Omaha. Menks apparently was baited into a response by a reporter. but he would be back at work the usual time the next day. BUFFETT FOUNDATION
Each year at the Berkshire Hathaway annual meeting. some of Buffett’s colleagues were surprised to get an e-mail from him. she respects waitresses.About Family 79
NOTE:
There is some question about the accuracy of
this quote. This is the same establishment where Bill Gates purchased Melinda’s ring. 2006. She says that. Mostly likely the ring was not unpretentious.
The afternoon of August 30. The 15-minute wedding was unpretentious. in fact.

Susie donated $5 million to her old school. It is estimated that STB will reach $5 billion. In a letter to the board of directors after his ﬁrst wife’s death.43 STB is run by Allen Greenberg. putting it among the top 20 U. Catholics for a Free Choice. This includes $10 million each to Save the Children and to Bono’s charity for Africa relief. The Susan T. The foundation will receive $2. DATA. the Population Council. for a new stadium and another $6 million to ﬁve California doctors for the study of mouth cancer. Buffett reconﬁrmed his support
. STB in 2006 had more than $318 million in assets. Buffett (STB) Foundation reportedly helped the Center for Reproductive Rights pay for the battle to reverse Nebraska’s ban on the so-called “partial birth” abortion. and the National Campaign to Prevent Teen Pregnancy. carrying placards showing aborted fetuses and decrying the Buffetts as murderers for their passionate support of reproductive rights and population issues. former husband of Buffett’s daughter Suzie. Omaha Central High School. The foundation also helped fund the RU-468 “day-after abortion pill” and supplied funds to Planned Parenthood Federation of America. universities. The campaign succeeded in 2001.80 WARREN BUFFETT SPEAKS
Steak House.S. The Susan T. It is the foundation’s intention to make grants of around $150 million each year. and student scholarships.5 billion in Berkshire shares from Susie’s estate and will eventually get $3 billion from Warren. foundations. Buffett Foundation has also given money to hospitals. teachers.

Leila.190 miles on my Exercycle.About Family 81
of the STB Foundation. He was generous with the 92-year-old widow and sometimes introduced her at annual meetings. . as moody and difﬁcult to grow up with. “Under Allen’s leadership. He once bought himself an exercise bike and bought another one (along with a new car) for his mom: “Between the two of us. the foundation has succeeded beyond our high expectations— delivering enormous results per dollar spent.” 45 Buffett’s mother shed more light on the situation: “Warren gave me a Cadillac for my 80th birthday. ‘You’re counting rather heavily on your genes. we put 25. I just went for the ﬁrst time in six or seven years for a general checkup. I should have bought her a bicycle. instead of a Cadillac.000 miles on those machines.” 44
BE KIND TO YOUR MOTHER
Some authors have described Buffett’s mother. aren’t you?’ ” 47
. Buffett appreciates the gifts his mother gave to him: “My health is terriﬁc. But I’ve put 19. . The doctor asked me about my diet and said. But all the mileage was on hers .” 46
Likewise. I’ve got only 8. Buffett speaks affectionately of her.000 miles on it.

Buffett has critics.”48 When asked if she knew her son would someday accumulate so much wealth: “Oh my. He always got very good grades before and after that. I never dreamed that would happen. Gillette. He was a good boy. The Wall Street Journal51 accused him of taking advantage of his reputation and wealth to secure deals that other investors cannot get: “By offering help against takeover attacks to USAir.” 50
NOTE:
Leila Buffett passed away on Warren’s birthday.
August 30. he has managed to extract exclusive and highly favorable
. She was 92. and Salomon. He never smoked or drank. Easy to raise.” 49 His mother valued Buffett for himself rather than his wealth: “I’m more proud of him for the kind of human being he has become. though his mother said his poor grades were only temporary: “I think Warren was just going through a phase at the time. But Warren always had a fascination for numbers in connection with earning money. no.
WHAT THE CRITICS SAY
Despite his reputation as a straight shooter. He’s wonderful person. 1996. He never gave us any trouble at all.82 WARREN BUFFETT SPEAKS
WHAT LEILA BUFFETT HAD TO SAY ABOUT HER SON
In junior high school Buffett wasn’t a top scholar.

”
NOTE:
Buffett later was forced to take a management role
at Salomon to help the company recover from an episode of illegal government bond trading.52
. BRITISH INDUSTRIALIST
“I don’t understand people like Warren Buffett who pride themselves on living in their ﬁrst house and driving a used Chevy to work.” And later in the same story: “Mr. But the jury is still out on whether the companies are being smart in forging protection arrangements with Mr.
SIR JAMES GOLDSMITH. Bufett has ‘done a brilliant job of convincing people’ that his white squire investments are good for America.About Family 83
investment deals for his Berkshire Hathaway investment company that weren’t available to other shareholders.” After that quote ran in Time magazine. he also had to take a write-down of $268.7 billion. Goldsmith called Buffett and apologized. but USAirways. declared a substantial dividend. Buffett began pulling out of those two companies when the opportunity arose. Buffett no longer holds investments in USAirways.5 million on the USAirways investment. Berkshire Hathaway did not actually experience a loss on USAirways. Not only did the securities return to the price Buffett paid for them. says a well-known raider. these three deals alone total $1. implying that he was misquoted. Ultimately. Gillette was acquired by Procter & Gamble in 2005. despite being billionaires. Buffett.

“We were stunned. Greene stands behind his statement. 1989). Michael Lewis.” 53
NOTE:
Stan Lipsey. seem to be one of them. but pity the business school professor on $50 grand a year who tries to argue with a billionaire. Lipsey says. Buffett may have made a general statement about the economics of newspapers that dominate a market. and former Salomon trader and author of Liar’s Poker (Norton. so I don’t feel any desire to share them with you. which may have been interpreted this way by Greene.
MICHAEL LEWIS. considering its high proﬁtability.” Greene said of the Buffalo News staff. THE BUFFALO NEWS
When asked in 1982 if the Buffalo News could initiate a proﬁt-sharing plan. says he
was present at all meetings Buffett had with union members. and he does not remember Buffett making this comment. (The reason he is rich is simply that random games produce big winners. COPY EDITOR AND LATER UNION PRESIDENT. Buffett is said to have replied: “There’s nothing you people on the third ﬂoor [the newsroom] do that has any effect on my proﬁts.)” 54
. AUTHOR
Not everyone thinks Buffett is a genius. We thought he was such a nice guy.84 WARREN BUFFETT SPEAKS
ALLEN GREENE. “He regularly ridicules skeptical professors with a vaguely thuggish if-you’re-so-smart-why-am-I-rich routine. publisher of the Buffalo News.

it sold at 381. but during the year. it was below 200. So people were very suspicious about the postwar [era] and thought we were going into a depression. and the low was about 160. . In 1929.
WORK FOR THE FUN OF IT
Warren Buffett noted that when he graduated from Columbia University: “Wall Street [in 1951] wasn’t a hot place to work at all.About Work
Philosophers tell us to do what we love and success will follow. Then it started moving up.” 1 85
. Buffett is living proof that it works. [ Wall Street] was not a big money place to work . The high was about 190. it was quite a different world. . and the market from 1945 to 1949 had gone sort of sideways. The Dow was 200. 1950 was the ﬁrst year the Dow never sold below 200.

86 WARREN BUFFETT SPEAKS Buffett says working with people you don’t like is like “marrying for money”: “I think that’s kind of a crazy way to live. Oh. but that’s where the realism comes in. It’s probably a bad idea under any circumstances. No one can tell me to do things I don’t believe in or things I think are stupid. and that includes political life.” 5 Buffett is often encouraged to run for political ofﬁce: “I wouldn’t trade my job for any job. It’s the fun of making money and watching it grow. Now there is more money and things
.” 3
“It’s not that I want money.” 2
“What I am is a realist.” 6 Buffett describes Berkshire Hathaway as “my canvas. perhaps it would have been nice to be a major league baseball player. and I get to do what I want.”7 “I have a blank canvas and a lot of paint. but absolutely nuts if you’re already rich.” 4
“I’m the luckiest guy in the world in terms of what I do for a living. I always knew I’d like what I’m doing.

” 8
“When I go to my ofﬁce every morning. he’d be very happy. but I had just as much fun 10 or 20 years ago when it was on a smaller scale. though [ I ] have learned to live with those also. making couplers for rail cars.” 11
“My guess is that if Ted Williams was getting the highest salary in baseball and he was hitting .400. I feel like I’m going to the Sistine Chapel to paint. and Warren earned much of his early income as a carrier for the Washington Post and as circulation manager for the Lincoln Journal.” 10 Buffett’s maternal grandfather owned a newspaper. newspapers are a hell of a lot more interesting business than.About Work 87 are on a bigger scale. I really enjoy being part of the institutions that help shape society.” 9
“[ I ] enjoy the process far more than the proceeds. he would be unhappy. say. Money is a
. And if he was getting the lowest salary in baseball and batting . That’s the way I feel about doing this job.220. Newspapers are in his blood: “Let’s face it. While I don’t get involved in the editorial operations of the papers I own.

Operating as the Wilson Coin Operated Machine Company. He sold Cokes at a markup to his friends.” 13
START EARLY
Buffett bought his ﬁrst stock at age 11 when he and his sister Doris bought three shares of Cities Service preferred stock for $38 per share. they sold the shares but the stock price kept going— eventually climbing to $200 per share. published a race track tip sheet. When the stock fell to $27. Buffett-Falk & Co. he and a friend bought a reconditioned pinball machine for $25. After Cities Service rallied to $40. they became a little concerned. carried newspapers.88 WARREN BUFFETT SPEAKS by-product of doing something I like doing extremely well. a New York Stock Exchange ﬁrm that was in the same building as my dad’s ﬁrm. and recycled golf balls. “I’d been interested in the stock market from the time I was 11. Buffett got involved in many businesses.” 12
“I feel like tap dancing all the time. He also learned a lesson about patience.” 14 Throughout his childhood. they put the game
. when I spent some time watching the market and marking the board at Harris Upham. While at Woodrow Wilson High School in Washington.

and I thought if I shorted AT&T. You can think
. Buffett bought an unimproved farm in northeastern Nebraska and had $9.15 Eventually. I would terrorize them about their retirement.” 18
“I probably have more friends in New York and California than here.” Buffett said. Buffett replied: “With enough inside information and a million dollars.” 17
WORK WHERE YOU WANT TO WORK
When asked why he forgoes working in New York. Later. “I ﬁgured I had discovered the wheel. They checked the coin box at the end of the ﬁrst day and found $4.000 in the bank by the time he graduated from high school.About Work 89 in a barbershop.16 Buffett developed an early reputation as an investor: “I shorted a few shares of American Telephone because I knew that all my [ high school] teachers owned it. you can go broke in a year. They thought I knew about stocks. but this is a good place to bring up children and a good place to live. where he could be nearer the ﬁnancial markets and the rumor mill. the pinball business was netting $50 per week.

I don’t interact with people I don’t like or admire. It’s like marrying. and I do what I want in life. and you can just sit and look at the stock on the desk in front of you.90 WARREN BUFFETT SPEAKS here. you don’t hear so many stories. intelligence. ‘How do I get rich in a hurry?’ I would not respond with quotations from Ben Franklin or Horatio Alger but would instead hold my nose with one hand and point with the other toward Wall Street. That’s the key.” 20
WORK WITH GOOD PEOPLE
“I choose to work with every single person that I work with. And if they don’t have the ﬁrst. who the hell is?” 22
“Somebody once said that in looking for people to hire. Why shouldn’t I? If I’m not in a position to do what I want.” 19 But he also says: “If a graduating MBA were to ask me. You can think better about the market. you look for three qualities: integrity. and energy. That ends up being the most important factor. the other two
.” 21
“I work with sensational people. You can think about a lot of things.

you just have to get a good result. I advise you never to do anything because you think it’s miserable now but it’s going to be great 10 years from now. If you hire somebody without the ﬁrst. or because you think I’ve got X dollars now.” 24 Who you work for makes a big difference. Buffett said: “I believe in going to work for businesses you admire and people you admire. ‘Who should I go to work for?’ I said. at one time. you really want them to be dumb and lazy. Anytime you’re around somebody that you’re getting something out of and you feel good about the organization.” 23 When a graduate student sought job counseling. players like Babe Ruth and Lou Gehrig voted a full share of their World Series proceeds to their bat boy: “The key in life is to ﬁgure out who to be the bat boy for.” 25 Buffett admits that his advice to college students has had unexpected outcomes: “I gave a talk last year. you’re probably not going to enjoy it 10 years from now. “Go to work
.About Work 91 will kill you. but I’ll have 10X. some student at Harvard asked me. Buffett remembers that. it’s true. You think about it. If you’re not enjoying it today.

instead of thanks a million. . . The only brand-new MBA he ever hired was a young woman from Harvard. and the present market value is about $140 million.92 WARREN BUFFETT SPEAKS for whoever you admire the most. we now would have either $50 million worth of Dow Jones. ‘What are you telling these kids? They’re all becoming self-employed.’ ” 26
NOTE: A gentle get-back there? Buffett applied to Harvard before he was admitted to Columbia.” I got a call from the dean about two weeks later. or $40 million of Times Mirror. in 1984: “Berkshire Hathaway bought its shares in the Washington Post in the spring and summer of 1973. $30 million worth of Gannett. .6 million. $75 million worth of Knight-Ridder.” 27
. If we had spent this same $10. So. He said. make it thanks anywhere from $65 [million] to $110 million. but Harvard rejected him.
GIVE A PAT ON THE BACK
Buffett wrote to Katharine Graham. . The cost of these shares was $10.6 million at the same time in the shares of . . But Buffett seems to hold no grudge. late publisher of the Washington Post. other [media companies] . . $60 million worth of the New York Times. .

and that policy penalizes our results somewhat. It was awful. but we prefer to operate that way in life. The dog that loves you so much that he jumps off the roof . admire. and my son called to him and he jumped. .About Work 93
BE LOYAL TO YOUR PARTNERS
Buffett acknowledges that money and power could give him undue advantage over partners. you can put people into those situations. We’re partners in it. He lived. even if the company’s television network problems were not quickly resolved: “It’s like if you have a kid that has problems: It’s not something we’re going to sell in ﬁve years. and others: “One time we had a dog on our roof. What’s the sense of becoming rich if you’re going to have a pattern of operation where you continually discard associations with people you like.” 29
“We’re not pure economic creatures. too. but he broke a leg. and ﬁnd interesting in order to earn
. employees. .” 28 When Berkshire Hathaway invested in Cap Cities/ ABC. Buffett promised former Chairman Tom Murphy that it would be for the long term. I don’t want to do that.

7 billion for a unit with a net worth of $3 billion. who led a recovery at GEICO. operations. The blue light for a bargain was ﬂashing. but not to the exclusion of everything else. In partnership with Buffett. Buffett received Disney shares but later sold them. and Berkshire ended up owning 30 percent of White Mountains. made the sale of Fireman’s Fund a success.
NOTE:
In the fall of 2005 an unexpected opportunity arose to buy the U. and Buffett’s lifetime practice of making friends and building trust paid off for Berkshire shareholders. Byrne’s White Mountains Insurance Group acquired CGNU’s U.94 WARREN BUFFETT SPEAKS a slightly bigger ﬁgure? We like big ﬁgures. Buffett contributed $300 million to the deal.” 31 Cap Cities/ABC was sold to Disney in 1995 for $19 billion. paying $1.S. Buffett made a quick decision to commit a lot of capital to the deal because he believed in Byrne:
.” 30
“I don’t think I would feel good about myself if I went around dumping people after they trusted me. operations of British insurer CGNU. Buffett’s old friend Jack Byrne.S. PLC. took the lead. and gained Buffett’s respect in other business deals. at 70 percent of its book value.

eventually came to understand his father’s time management process: “My father couldn’t run a lawnmower. ‘Ladies.About Work 95 “Byrne is like the farmer who rolls an ostrich egg into the hen house and says. or wash a car. As you can see (waving toward the small suite that makes up Berkshire Hathaway headquarters). Howard. trim a hedge.
GUARD YOUR TIME
Warren’s oldest son.”33 Said Warren Buffett: “It’s not a plus to get terribly well known. I don’t like to be hard-nosed. I never saw him cut the grass. this is what the competition is doing. .” 34 Buffett rarely gives speeches or makes public appearances on behalf of civic or business organizations. we are not equipped to handle tons of inquiries. and only when I got older and understood the value of time did I realize why he did things the way he did. but there’s also no way I can do it and get my job done.’” 32 Jack Byrne retired as chairman and CEO of White Mountains Insurance Group in January 2007. I remember that used to be irritating. . His time is so valuable. . But he does
. We get letters from people all over who want advice on investments.

100. hold a news conference with Buffett. as opposed to a bunch of 60-year-olds. and it may actually change their lives. “If you talk to 100 students and you say something that makes sense. “I mean. Zanker got the car but not Buffett.96 WARREN BUFFETT SPEAKS make about a dozen speeches. The car had a Kelly Blue Book value of $11. Bill Zanker. but I probably won’t change anything I do. serves on the board of directors. at that time. a few of them may pay attention to it. bought the car for $73. where Suzie Jr. I can go hear a speech and I know whether I’m entertained or not. apparently knew it from experience.
. at universities each year. He announced that he would go to Omaha to take delivery and.200. he donated it to Girls Inc.” 35 Buffett can be generous with his time and assets: He once donated a lunch date to a foundation supporting San Francisco’s Glide Memorial Church’s work with the homeless. who was 63 when he said this..” Buffett. founder of The Learning Annex. But Buffett also defends his boundaries. mostly question-and-answer sessions.200. When Buffett planned to replace his 2001 Lincoln Town Car. The Glide Foundation auctioned the lunch off on eBay for $620.

He shut down the Buffett Partnership. I just say no. “I should have called his ofﬁce ﬁrst. when the stock market was on a high. which had experienced a thirtyfold increase in value.About Work 97 “I timed it wrong.” It also was no-go when Zanker offered to donate $2 million to charity if Buffett would speak for 30 minutes to one of The Learning Annex real estate and wealth seminars.” 38
“If at ﬁrst you do succeed. He was 38 years old: “I don’t want to be totally occupied with outpacing an investment rabbit all my life.”
.” explained Zanker. Buffett politely explained that he preferred to teach adults at Berkshire’s annual meeting. I just use the Nancy Reagan policy.” 39 In 1969.” 37
KNOW WHEN TO QUIT
“That which is not worth doing is not worth doing well. Buffett took early retirement.36 Buffett borrowed his time-management principles from a pro: “Well. quit trying. and returned the money to investors.

98 WARREN BUFFETT SPEAKS He added: “I have no urge to keep piling up money. Buffett was soon creating his new investment vehicle.
NOTE:
. Berkshire Hathaway.” 40 He didn’t stay away from work long. from the cloth of a textile manufacturing concern.” And ﬁnally: “The only way to slow down is to stop.

” 1
“If you understand an idea. I find that every year when 99
. but she’s not an expert either. I don’t see anything wrong with graphics. especially since they have no graphs or photos? He writes as if for someone he knows.About Running a Business
COMMUNICATE WELL
How does Buffett write such clear and candid annual reports. to deemphasize real information. It’s just that I think there is a tendency when people emphasize. you can express it so others can understand it. She’s not business-ignorant. “I just assume my sister owns the other half of the business and she’s been traveling for a year.

a woman answering the telephone at Berkshire gave the company’s standard reply: “It has long been the policy at Berkshire Hathaway that we never comment on our portfolio or rumors about our portfolio. He wants people to know what they’re getting into: “We could stick a sign outside this hall tonight and put ‘rock concert’ on it.” 3
KNOW WHEN TO SAY NO
When asked to comment on the 1992 purchase of shares in Wells Fargo & Co. is through the communications and policies.”4
. and we’d have one kind of crowd come in. There’s nothing like writing to force you to think and to get your thoughts straight.. The block isn’t because I’ve run out of words in the dictionary. or vice versa. And we could put ‘ballet.’ and we’d have a somewhat different kind of crowd come in. The block is because I haven’t got it straight in my own mind yet. I hit these blocks. And the only way I have of sticking a sign on Berkshire. But it’s a terrible mistake to put rock concert out there if you’re going to have a ballet. Both crowds are ﬁne.” 2 Berkshire’s high share price is one way of communicating to people that Buffett wants serious investors who acquire the shares for the long term.100 WARREN BUFFETT SPEAKS I write the report. as to the kind of place I’m asking people to enter.

About Running a Business 101 There is a reason for Buffett’s silence on investment activities: “If I say anything. Such was the case when he worked with Salomon to resolve its government securities trading improprieties: “We [Salomon] will pay any ﬁnes or penalties with dispatch. That is. I will
. I know it [the low price that interests him] will be gone. necessary though they are. go to page 108. During my tenure as chairman.
SET AN EXAMPLE
During his stint as interim chairman of Salomon Inc. However. we will make appropriate amends for past conduct. Buffett told shareholders: “An atmosphere encouraging exemplary behavior is probably even more important than rules. to whatever extent necessary.” 6
NOTE:
For more on the Salomon scandal. and we will also try to settle valid legal claims promptly. You can’t telegraph your punches in a ﬁnancial situation. of which there will be many. we will litigate invalid or inﬂated claims.. but we will be no one’s patsy. he is capable of expressing himself succinctly.” 5 When Buffett wants to send a warning shot across the bow.

Buffett sets down the rules by which the annual meeting will be conducted. we simply want no part of any activities that pass legal tests but that we. an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper. and I have asked all 9. He stays until all questions are answered. as citizens.” 7
THE BERKSHIRE HATHAWAY ANNUAL MEETING
Many thousands of investors and admirers descend upon Omaha each spring to sit in a crowded meeting hall for hours to hear what Warren Buffett has to say.102 WARREN BUFFETT SPEAKS consider myself the ﬁrm’s chief compliance ofﬁcer.” 8
. Contemplating any business act. children. At Salomon. and if the questions are still rolling in when lunchtime comes. I have also urged them to be guided by a test that goes beyond rules. there to be read by his spouse. would ﬁnd offensive.000 of Salomon’s employees to assist me in that effort. These examples are collected from several different years: “The business of the meeting will be handled in our usual Stalinistic manner to allow plenty of time to answer shareholder’s questions. Every year. and friends. shareholders can go to the lobby to buy sandwiches and a Coca-Cola.

there are carts selling See’s Candy. It’s a perfectly fabulous human achievement. “go to the Nebraska Furniture Mart and see Mrs. . To edit something that
. it’s better form to leave while Charlie’s talking—which is rarely. whichever comes ﬁrst.” 9
“We’ll be here to answer questions until around noon or until Charlie says something optimistic. or anyplace else that Berkshire has an economic interest in. B in her natural setting. One must.” 10
“After the meeting. but also serve an educational purpose. In the lobby of the meeting hall. Buffett insists. he used to say. World Book encyclopedias. and other Berkshire Hathaway–owned products. cowboy boots. modular homes. Ginzu knives. He especially likes the World Book encyclopedia: “I give away more of that product than any other product that Berkshire Hathaway makes.”12 Charlie Munger occasionally makes a marketing pitch of his own.About Running a Business 103 “If you must leave during the meeting.” 11
The preceding is no joke. Borsheim’s jewelry. The trips to the Berkshire Hathaway–owned stores not only allow people to shop. . . there will be buses to take out-oftown guests to the Nebraska Furniture Mart.

where we’re meeting today. is an old vaudeville theater. The meeting next moved to Aksarben Fairgrounds.000 people showed up. and again. the hall was packed. Buffett changed his mind. the meeting moved to the convention center at the Holiday Inn. Since the Orpheum Theater. who told him that he’d stopped accepting new investors to his partnership.
TAKE CARE OF SHAREHOLDERS
Berkshire Hathaway investor Gerald L.
. logistics for the annual meeting get trickier: “Most of you know we held our annual meeting at the Joslyn Art Museum the past several years until we outgrew it. Pearson went to talk to Buffett. I suppose we’ve slid down the cultural chain. ﬁlling the Qwest Center to capacity. the Qwest Center. In 2007. Omaha then built a new state-of-the-art convention center.104 WARREN BUFFETT SPEAKS
user friendly with that much wisdom encapsulated is a fabulous thing. Berkshire’s shareholder base doubled in 1996 with the issuance of the Berkshire B shares. Don’t ask me where we’ll go next. After talking to Pearson for an hour.” 14 In 1995. more than 20. “Bud” Pearson says he heard about Buffett from a friend in 1965.”13 As more people become Berkshire shareholders.

I think. heck.” 17
. you seem like a nice guy. and most hold considerable shares. in fact.About Running a Business 105 “Aw. He tried to shift the corporate culture at Salomon: “ We wish to see the unit’s managers become wealthy through ownership.”15
The board of directors at Berkshire are inspired to take care of shareholders for more than one reason. If the board is sued for misconduct.” 16
Buffett likes to invest in businesses where managers think like owners. In time. the board member are shareholders.
When asked why thousands of shareholders travel long distances to attend Berkshire Hathaway’s annual meeting in Omaha each year. it could cost them a considerable amount of money. not by simply free-riding on the ownership of others. Berkshire does not carry directors’ and ofﬁcers’ liability insurance. First of all. Also. that ownership can in time bring our best managers substantial wealth. perhaps in amounts well beyond what they now think possible. Pearson became a “Buffett millionaire. Buffett surmised: “They come because we make them feel like owners.” Buffett said.

Yet from the outset. churches. Nobel laureate economist Milton Freidman noted that the democratic process was subverted when corporations gave away shareholder’s money to charities without consulting them. mainly because some of the money went to so-called liberal causes. The Berkshire giving model was widely admired by policy makers. and synagogues.106 WARREN BUFFETT SPEAKS
GOODBYE TO A GOOD IDEA
Charlie Munger.500 charities. So that year. especially to reproductive rights. Buffett and Munger gave their portion to their charitable trusts. a small group opposed the plan. which traditionally supported—among other things—family planning efforts. the money that companies distribute actually belongs to shareholders. questioned why corporate leaders should decide what charities their shareholders support. When B shares were later issued. in 1981. Berkshire’s shareholder giving program distributed $197 million to about 3. even conservative ones. donations would be sent to those charities in proportion to the number of A shares held by the shareholder. An antiabortion
. The idea caught on quickly. he and Buffett instituted a giving program that allowed each shareholder to designate up to three charities. After all. their holders could not participate. In the 22 years it operated. The overwhelming favorite recipients were schools. Representative Paul Gillmor (R-OH) in 1997 even tried to pass legislation requiring all corporations to adopt the Berkshire model.

About Running a Business 107
group called Life Decisions International organized an unsuccessful consumer boycott against Berkshire subsidiaries and. Buffett and Munger saw Christopher’s company and Berkshire’s investment slipping away. Berkshire acquired Pampered Chef. and sales took a dive as sales associates and their customers abandoned the company to avoid involvement in the program.000 shares. Many of these multigenerational investors have charitable foundations or organizations of their own choosing that return to society some of the beneﬁts they have received.”18 Munger needn’t have been too sad. died in 1995. There are hundreds of investors who became multimillionaires. the nation’s largest kitchenware company. Then in 2002. in 2002.000 in the Buffett Partnership in the early 1960s. through their early Berkshire investments. They decided to wrap up the precedent-setting corporate gift program. When Donald. Christopher. submitted a shareholders’ resolution to end Berkshire’s giving program. his estate held approximately 7. even though Munger admitted. The company’s charitable giving program wasn’t the only way they share the wealth. The resolution was defeated by 97 percent of shareholders. Pampered Chef became a target for the boycott. Donald and Mildred Topp Othmer each invested $25. a chemical engineering professor. Pampered Chef is a direct seller of cookwares through individual distributors who usually sell at private parties in homes. which went to charity. Doris K. When Mildred died
. “It killed me. from its founder. even billionaires.

000 and is sentenced to prison for four months. charities still beneﬁted hugely.” 19 While serving as interim chairman. the University of Nebraska.
THE SALOMON SCANDAL
Salomon bond trader Paul Mozer was charged with illegal trading of U. Famous gadﬂy shareholder Evelyn Y. For example. Even though a niece challenged—and a court modiﬁed—Mildred’s will. Davis asked Buffett how he could justify charging $158. Buffett observed: “Mozer’s paying $30.000
. It lasted three hours. allegedly in an attempt to corner the market.S. as Buffett faced a grilling from shareholders who wanted more information about Salomon’s government bond-trading offenses. Buffett presided over the 1992 Salomon Brothers annual meeting. Buffett’s alma mater. received $125 million. and Buffett was working without salary to restore the company’s credibility in the market after Mozer’s crime. Treasury bonds.108 WARREN BUFFETT SPEAKS
in 1998. she left $750 million to charity. Berkshire Hathaway held a major investment in Salomon. The incident posed a serious threat to the survival of the entire company. Salomon’s shareholders—including me—paid $290 million. and I got sentenced to ten months as CEO.

” 21
NOTE:
Travelers bought Salomon in 1997. but I travel expensive. Berkshire has no position in the company now.
BERKSHIRE HATHAWAY ONLINE
Buffett has called his shareholders a community. and now they convene in cyberspace. Evelyn. And I think the mere mention of that would be enough to induce a little moderation. then it was
merged into Citicorp in 1998. They are residents of a ﬁctional global village called Graham & Doddsville. to which Buffett replied: “I would be delighted to have you negotiate with them. Buffett announced in the 1996 annual report that although “it was a close decision. Residents of Graham & Doddsville gather for their annual reunion the ﬁrst weekend in May in Omaha. the legendary fathers of the value investing philosophy. named after Ben Graham and David Dodd. They would always post the report on Saturdays so that
. which shuttled Buffett between Omaha and New York City.” 20 Davis also groused about the $25 million in lawyer’s fees associated with the resolution of Salomon’s problems. Buffett answered: “I work cheap.” he and Munger decided to put the annual report on the Internet.About Running a Business 109
for the cost of his corporate jet.

There also are numerous blogs and message boards. Occasionally.com. comments by Buffett.com. When I marry the daughter.
HIRE WELL.22 Buffett says his employment form has one question: “Are you a fanatic?” The best managers are..23 “I like guys who forget that they sold the business to me and run the show like proprietors.” 25
.” He’s always seeking great managers. using the name Doshoes.” 24
Buffett expects his managers to be that way: “If they need my help to manage the enterprise. now has more than reports. Perhaps the most popular is found at messageboards@aol. www .110 WARREN BUFFETT SPEAKS
readers would have time to digest the news before trading opened Monday morning. and the purest facts and ﬁgures on the company. he is also a “value manager. Berkshire’s website.com. It provides pitches for GEICO. she continues to live with her parents. you’ll ﬁnd a posting from Suzie Jr. we’re probably both in trouble. MANAGE LITTLE
Author Robert Miles says Buffett is not only a value investor. news releases.berkshirehathaway. such as one at Ragingbull@lycos.

” 26
“In a general sense. and one day running a business has exactly the same kind of value. rather than simply holding shares. gray hair doesn’t hurt on this playing ﬁeld: You don’t need good hand-eye coordination or well-toned muscles to push money around (thank heavens). is the ability to reinvest
. As long as our minds continue to function effectively. Charlie and I can keep on doing our jobs pretty much as we have in the past.
PUT A PREMIUM ON EXPERIENCE
There is no retirement age at Berkshire Hathaway. he has greater objectivity. Buffett sets prices on See’s Candy and circulation rates for the Buffalo News. Each year. Both management and Buffett say that because he’s some distance from the operations. The CEOs there serve an average of 23 years: “Can you really explain to a ﬁsh what it’s like to walk on land? One day on land is worth a thousand years of talking about it.” 27
BE SMART ABOUT ALLOCATING CAPITAL
An advantage of owning a company outright.About Running a Business 111 There are exceptions to that policy.

per se. Buffett invested $100 in a Dale Carnegie course: “. We don’t have a mind-set that says you have to go down this road. .” 31
. We’re big in insurance.” 28
BE BRAVE
After he ﬁnished college. We’re not in the shoe business. even if that means moving funds to a different industry: “We’re not in the steel business. per se.112 WARREN BUFFETT SPEAKS proﬁts efﬁciently. not to prevent my knees from knocking when public speaking but to do public speaking while my knees were knocking.” 30
“I feel the same way about managing that I do about investing: It’s just not necessary to do extraordinary things to get extraordinary results. but we’re not committed to it. So we can take capital and move it into businesses that make sense. . per se. We’re not in any business.” 29
USE CROSSOVER SKILLS
“I am a better investor because I am a businessman and a better businessman because I am an investor.

About Running a Business 113

THE MIGHTY MACHINE CALLED BERKSHIRE HATHAWAY
For many years, if you said the name Berkshire Hathaway Corporation, people asked, “Don’t they make shirts?” No, and the company never has. When Warren Buffett started buying shares, Berkshire was a declining New England textile mill. Buffett has called it one of his biggest investment mistakes. After trying and trying to rescue the mill, Buffett ﬁnally shut it down. But he didn’t give up the corporate shell that remained. Instead, he slowly and deliberately transformed it into the greatest holding company anywhere, ever. The company has 217,000 employees and annual revenues of nearly $100 billion. But the company has another distinguishing aspect— some people see Berkshire as a cult with the Oracle of Omaha the cult leader. If this were the case, belonging to this cult has been proﬁtable. If you had invested $10,000 in Berkshire in 1965, your investment would have been worth more than $30 million by 2006. If you had put that same money in the Standard & Poor’s (S&P) 500 stock index and left it there, you’d have a measly $500,000. Morningstar reports that since 1965, Berkshire’s book value per share has grown at nearly 22 percent per year. Over the same time, the S&P grew by 10.4 percent.

114 WARREN BUFFETT SPEAKS Berkshire is the parent to more than 65 companies and owns around 39 different stocks. It holds positions in a variety of industries, from furniture to fast food to footwear to underwear. Most of its assets, however, are in insurance companies. GEICO is the fourth-largest auto insurer in the United States. General Re Corporation and Berkshire Reinsurance Group are two of the largest reinsurers in the world. General Re is the world’s only AAA-rated reinsurance company. ( Insurance companies buy reinsurance to help offset major risks, especially unpredictable ones, such as hurricanes and earthquakes.) Buffett built Berkshire into one of the eight companies with a Moody’s Aaa rating, the highest credit rating achievable. How did he do it? Buffett began by focusing on stocks and gradually started buying entire businesses at favorable prices. He then kept debt at a minimum and allocated capital back into the businesses in ways that boosted proﬁtability. One of the most impressive Berkshire assets is its cash holdings: In 2006, Berkshire had $42 billion in reserves. Former Paine Webber analyst Alice Schroeder says, “Berkshire is now clearly an insurance company that will generate excess capital and cash ﬂow that can be invested; and, of course, the real synergy here is that Warren Buffett is the master at allocating and using capital.” 32

About Running a Business 115 Even with the heavy weighting of insurance companies, Buffett says: “The company has a multitude of diversiﬁed and powerful streams of earnings, Gibraltar-like ﬁnancial strength, and a deeply imbedded culture of acting in the best interest of shareholders. Outstanding managers are available to succeed me. I expect Berkshire to become ever-stronger and more proﬁtable as it makes new acquisitions and expands present businesses.” 33 While Berkshire may not precisely ﬁt the description of a cult, it certainly has become a community of true believers. Investors tend to buy and then refuse to sell, even instructing their heirs to hold on. The annual meeting is sometimes called a hajj, and Buffett himself dubbed it the Woodstock for investors. Fortunately, Buffett is far too practical to ask shareholders to drink Kool-Aid or to follow him over a cliff. But he does expect them to hold on during times when the stock isn’t skyrocketing and to boldly shop at all Berkshire subsidiaries. And they do.

About Investing

Warren Buffett employs investment principles that he describes as “simple, old, and few.” 1 Many of Buffett’s methods evolve from his personality and character. Others he has learned from teachers and experience. Like all good students, he uses his training as a foundation. In time, he stacked the bricks far higher than his best teachers.

“Over the years, a number of very smart people have learned the hard way that a long stream of impressive numbers multiplied by a single zero always equals zero.” 3

116

About Investing 117 Buffett returns again and again to Ben Graham: “I consider there to be three basic ideas, ideas that if they are really ground into your intellectual framework, I don’t see how you could help but do reasonably well in stocks. None of them are complicated. None of them take mathematical talent or anything of the sort. [Graham] said you should look at stocks as small pieces of the business. Look at [market] ﬂuctuations as your friend rather than your enemy—proﬁt from folly rather than participate in it. And in [the last chapter of The Intelligent Investor], he said the three most important words of investing: ‘margin of safety.’ I think those ideas, 100 years from now, will still be regarded as the three cornerstones of sound investing.” 4 Buffett summarizes Graham this way: “When proper temperament joins with proper intellectual framework, then you get rational behavior.” 5 Buffett is not concerned about his principles going stale: “If principles can become dated, they’re not principles.” 6

RECOGNIZE THE ENEMY: INFLATION
“The arithmetic makes it plain that inﬂation is a far more devastating tax than anything that has been enacted by our legislature. The inﬂation tax has a fantastic ability

she is ‘taxed’ in a manner that leaves her no real income whatsoever.” 7
“If you feel you can dance in and out of securities in a way that defeats the inﬂation tax. Besides. Partly. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inﬂation or pays no income taxes during years of 5 percent inﬂation. and owning businesses is much more interesting than owning gold or farmland.118 WARREN BUFFETT SPEAKS to simply consume capital. it’s just that stocks mean business. stocks are probably still the best of all the poor alternatives in an era of inﬂation—at least they are if you buy in at appropriate prices. I would like to be your broker—but not your partner. it’s habit.” 8 Buffett explains why he holds stocks even in times of high inﬂation: “Partly. Either way. She would ﬁnd outrageous a 120 percent income tax but doesn’t seem to notice that 5 percent inﬂation is the economic equivalent. Any money she spends comes right out of capital.” 9 Buffett has a few ideas on how to control inﬂation: “I could eliminate inﬂation or reduce it very easily if you had a constitutional amendment that said that no
.

He likens the experience to that of “Paul on the road to Damascus” and one in which he learned the philosophy of “buying $1 for 40 cents. That was like seeing the light.” 14
.” 13
“Prior to that. And then I picked up Graham’s The Intelligent Investor. I listened to tips. I collected charts and I read all the technical stuff. but it really did get me.” 12
“I don’t want to sound like a religious fanatic or anything.” 10
EXPERIENCE EPIPHANY
Buffett was 19 years old and a senior at the University of Nebraska when he read Graham’s classic The Intelligent Investor. I had been investing with my glands instead of my head.”11 Buffett says that before reading the book: “I went the whole gamut.About Investing 119 congressman or senator was eligible for reelection in a year in which the CPI increased more than over 3 percent.

along with vast intellectual curiosity. Shortly after Buffett joined Graham’s ﬁrm.16 Graham and Buffett had much in common. the Dow Jones Industrial Average hit 250. I’d probably still have about 10 thousand bucks. Graham told him: “Money won’t make any difference to you and me. generosity. We won’t change. Graham enjoyed a wide circle of friends.120 WARREN BUFFETT SPEAKS
BENJAMIN GRAHAM
Warren Buffett ﬁrst became acquainted with Graham when he read his book The Intelligent Investor. was more interested in the intellectual challenge of investing than in building a fortune. the DJIA had traded at below 200 in every year since its inception.” Buffett says. Graham suggested that he postpone his career in investments until the overheated market took a rest.” 17 When Buffett graduated from Columbia in 1951. he explained. Until then. and a wry sense of humor.” Buffett said. “If I’d taken [the] advice.15 Graham. Articulate and witty. Ben Graham had more impact certainly on my business life than any individual. “I had about 10 thousand bucks. Only our wives will live better. The chief similarity is a peculiar (to the rest of us) disinterest in lots of money. made Graham unique.” 18
. That. He met his hero in person in 1950 when Buffett enrolled in graduate school at Columbia University: “Next to my dad. During that year.

when we get our ideas about investing.” 19
“It bafﬂes us how many people know of Ben Graham. They should be easy to follow. he left an estate of around $3 million. we are widely recognized but least followed. Then we start shouting. which is better. He was about sound investing. “[Graham] wasn’t about brilliant investments and he wasn’t about fads or fashion.” 20
“Most of us.
NOTE:
Buffett ended up with much more money than
Graham. Ben was something else on that. He
.About Investing 121
It was an uncharacteristic suggestion. They are easy to learn. and I think sound investing can make you very wealthy if you’re not in too big of a hurry. we guard them jealously and don’t talk about them until we’ve bought the last share that we can afford. When Graham died in 1976 at age 82. Graham retired in 1956. And it never makes you poor. We tell our principles freely and write about them extensively in our annual reports. apparently weary of working and no longer interested in stocks. But the only thing anyone wants to know is. since Graham had built a career warning against market timing. but so few follow. ‘What are you buying today?’ Like Graham.

Generally. or formulas: “Even when the underlying motive of a purchaser of a security is mere speculative greed. had an innate love for math.” 23
. like Buffett.’ For ‘heart. and he was perfectly willing to share what other people thought of as secrets. He never taught a class without current examples.”
NOTE:
Buffett does not reveal his purchases until required
to do so by the Securities and Exchange Commission or long after the fact when explaining Berkshire Hathaway’s performance to investors. Berkshire does not announce investments of under $600 million. Here are some typical Graham observations on investing and the markets: “Pascal said that ‘the heart has reasons that reason doesn’t understand.” 21 Buffett laughed and added.122 WARREN BUFFETT SPEAKS
regularly taught at Columbia or the New York Institute of Finance. human nature desires to conceal this unlovely impulse behind a screen of apparent logic and good sense.’ read ‘Wall Street. he warned against any investor who bases investments on overly impressive charts. and I saw Ben do that. It is sort of the ultimate act of generosity when you go out and teach someone something that is actually going to be harmful to your own commercial well-being. graphs. “That is a part of Ben I didn’t carry forward.’ ” 22 Though Graham.

Buffett departs from him in several notable ways: “Ben Graham wanted everything to be a quantitative bargain.” 26
The late William Ruane. I want it to be a quantitative bargain in terms of future streams of cash. Ben tended to look at the statistics alone. when you could have done it quite easily. In my humble opinion.About Investing 123
Graham often reminded investors that they own the companies in which they invest and.” 24 Despite his admiration for Graham. should not let themselves be bullied by management: “I want to say a word about disgruntled shareholders. met Warren Buffett when both attended
. not enough of them are disgruntled. founder of the highly successful Sequoia Fund.” 25
“I’m willing to pay more for a good business and for good management than I would 20 years ago. My guess is the last big time to do it Ben’s way was in ’73 or ’74. I’ve looked more and more at the intangibles. And one of the great troubles with Wall Street is that it cannot distinguish between a mere troublemaker or ‘strike suitor’ in corporate affairs and a stockholder with a legitimate complaint which deserves attention from his management and from his shareholders. as owners.

instead. Graham seemed not to like the modiﬁcations Buffett proposed. But I was not going to change the ten commandments at all. Graham told Buffett that every day he hoped to do “something foolish. something is taught that is difﬁcult but not useful.” 29
For several decades. Together. Graham and Buffett paint a complete picture of how to invest: “[Graham] wrote what we call the Bible.” Graham said he usually was able to get the ﬁrst one accomplished before breakfast. The business schools reward complex behavior more than simple behavior.” 27
In his later years.” 30
.124 WARREN BUFFETT SPEAKS
Graham’s seminar at Columbia. but later Graham recovered and proceeded on his own. Ruane said. according to Buffett: “It’s not difﬁcult enough. he asked Buffett to help him revise The Intelligent Investor for a new edition. and something generous. So. Buffett said: “I wanted to talk a little more about inﬂation and about how the investor should analyze businesses. What were those changes? Not many. something creative.28 When Graham was in his late seventies and lay ill in a San Diego hospital. and Warren’s thinking updated it. Buffett agreed. but simple behavior is more effective. Warren wrote the New Testament. Graham’s theories have seldom been included in college curriculums because.

” 32
NEVER MIND WHAT THE PROFESSORS SAY
Buffett rails against investment theories such as efﬁcient market hypothesis. Buffett now hears from investors all over the world who share his admiration for Benjamin Graham: “He was true north on a lot of people’s compass.” 34
. California. and other concepts taught today at the major universities. he believes. investor Charles Brandes. They rely. beta. and other business schools included Graham’s teachings in their coursework.” 33
“Investing in a market where people believe in efﬁciency is like playing bridge with someone who has been told it doesn’t do any good to look at the cards.” Buffett says. after Buffett’s fame and success spread.About Investing 125
However. too heavily on abstract theory and not enough on common sense: “I’d be a bum on the street with a tin cup if the markets were always efﬁcient. Stanford. Columbia. “Warren has done very well.31 What did Graham have to say about Buffett? Graham told Del Mar.

Buffett also passes: “For me. Market returns with a new offer the next day
.” 38
MEET MR. We’re not interested in categories per se. We’re interested in value. Market. Market” was a character invented by Ben Graham to illuminate his students’ minds regarding market behavior. No matter how wild his offer is or how often you reject it. when asked about modern portfolio theory. Mr. shows up each day offering a price at which he will buy your share of the business or sell you his share.” 36 Buffett’s partner.”37 As for “asset allocation” to the future highest and best-performing industrial group. MARKET—YOUR SERVANT. instantly replied. it’s what’s available at the time.126 WARREN BUFFETT SPEAKS “It has been helpful to me to have tens of thousands [of students] turned out of business schools taught that it didn’t do any good to think.” 35
“Current ﬁnance classes can help you do average. The stock market should be viewed as an emotionally disturbed business partner. NOT YOUR GUIDE
“Mr. Mr. Charlie Munger. “Twaddle!” He added that the concepts are “a type of dementia I can’t even classify.39 This partner. Graham said.

In March 1989. not your guide. On that day. Berkshire shares traded at $40.About Investing 127 and each day thereafter. lender. Buffett wrote: “We have no idea how long the excesses will last. 2000 (though we didn’t realize that fact until some months later). their lowest price since mid-1997. Berkshire was selling at a high of $80. But we know that the less prudence with which others conduct their affairs. Buffett says the moral of the story is this: Mr. it was selling for almost half that much. as the stock market soared.731) hit its all-time high of 5.” 40 In the last years of the twentieth century.” 41
. by March 2000.800. the greater the prudence with which we should conduct our own affairs.132. That same day. Buffett wrote in the 2001 annual report: “Here’s one for those who enjoy an odd coincidence: The Great Bubble ended on March 10.000. In mid-1998. and buyer that fuel them. rumors of Buffett’s ill health and his inability to live up to his past brilliance. nor do we know what will change the attitudes of the government. problems with the General Re acquisition. Market is your servant. Berkshire’s price nose-dived. the NASDAQ (recently 1. kicked off the diving board by investors’ irrational exuberance over anything technology or Internet related.

So do I. The sequence is not predictable. He was right: In the short run. If these stocks are fully priced now. who then was my boss. it’s a weighing machine. Buffett. how can an investor be sure that a stock that is undervalued by the market eventually will rise? “When I worked for Graham-Newman. during the dark days. “I made a big mistake in not selling several of our larger holdings during the Great Bubble. lamented that he had not captured more proﬁts when some of his permanent holdings were wildly overpriced. in the long run.128 WARREN BUFFETT SPEAKS Nevertheless. like the Lord. about that. [the market is] a voting machine. He just shrugged and replied that the market always eventually does. Berkshire’s share price had more than recovered.” 44
“The market. however. And by 2005. you must wonder what I was thinking four years ago when their intrinsic value was lower and their prices far higher.” 45
. I asked Ben Graham.” 43
“The fact that people will be full of greed. helps those who help themselves. or folly is predictable.” 42 When conditions are reversed. Berkshire’s book value increased. fear. albeit by a small amount.

We simply try to focus on businesses that we think we understand and where we like the price and management. we don’t even read it.” 46
“You can’t get rich with a weather vane.” 47
“The market is there only as a reference point to see if anybody is offering to do anything foolish. if somebody handed us a prediction by the most revered intellectual on the subject. MARKET’S MOODS
“Charlie and I never have an opinion on the market because it wouldn’t be any good and it might interfere with the opinions we have that are good.” 48
“If we ﬁnd a company we like. When we invest in stocks. with ﬁgures for unemployment or interest rates or whatever it might be for the next two years. If we see anything that relates to what’s going to happen in Congress. the level of the market will not really impact our decisions. we invest in businesses.” 49
. We will decide company by company. we would not pay any attention to it.About Investing 129
IGNORE MR. We spend essentially no time thinking about macroeconomic factors. We just don’t think it’s helpful to have a view on these matters. In other words.

“I felt like an oversexed guy on a desert island. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for somebody else. stocks were high priced.” 52
LISTEN FOR OPPORTUNITY’S CALL
Though Buffett cannot anticipate market movements. and concentrate. In 1973. The dumbest reason in the world to buy a stock is because it’s going up.” 53
.” 50
“For some reason.130 WARREN BUFFETT SPEAKS “[John Maynard] Keynes essentially said. there are times when it is obvious that stock prices in general are too high or too low.” 51
“The future is never clear. I [didn’t] ﬁnd anything to buy. The clue is that there are either very few undervalued stocks to buy (the market is in the stratosphere) or there are so many good buys that an investor can’t take advantage of them all (the market is bottoming). Don’t try to ﬁgure out what the market is doing. Uncertainty actually is the friend of the buyer of long-term values. Figure out a business you understand. people take their cues from price action rather than from values. you pay a very high price in the stock market for a cheery consensus.

It’s good news for Berkshire. they gave Buffett a book.’ ” 56 Buffett says he likes to buy stocks when the “bears are giving them away. the autobiography of Jim Clayton. such a football signed by their coach.” 54
“Overall. ‘I only like two kinds of men: foreign and domestic. but his location (like the market) did. opportunities can just appear. One occurred when a group of students from the University of Tennessee made the school’s annual ﬁeld trip to Omaha to study Berkshire Hathaway and to meet with Buffett.”57 Whether market conditions seem auspicious or not. at the end of the sessions. So when the market plummets—as it will from time to time—neither panic nor mourn. founder of Clayton Homes. a basketball. Buffett ﬁnds no attractive investments: “Currently liking neither stocks nor bonds. I ﬁnd myself the polar opposite of Mae West as she declared. Buffett’s condition didn’t change.
. Each year.About Investing 131 In 1974. In 2003. Berkshire and its long-term shareholders beneﬁt from a sinking stock market much as a regular purchaser of food beneﬁts from declining food prices. or the like.” 55 At times. He told a reporter: “I feel like an oversexed guy in a harem. This is the time to start investing. the students present him with a gift.

They were glad to let Buffett provide and manage capital while they operated the company. had two supreme managerial traits—he was both honest and competent. Buffett became convinced that Kevin.” 58 Buffett knew Clayton “behaved considerably better than its major competitors” in lending. But I learned: Oakwood rather promptly went bankrupt.132 WARREN BUFFETT SPEAKS “I already knew the company to be a class act of the manufactured housing industry. the public ﬁnancials of Clayton. one of the industry’s largest companies. At the time of that purchase. since difﬁculties in the industry in general made large-scale ﬁnancing difﬁcult. In that telephone call. I did not understand how atrocious consumer-ﬁnancing practices had become throughout the manufactured housing industry. I made an offer for the business based solely on Jim’s book. Buffett told the students how much he admired Clayton. On receiving the book. who now runs the company.
. and soon afterward. Then the story came full circle: Clayton bought the assets of Oakwood. he called Kevin Clayton. Jim’s son. knowledge I acquired after earlier making the mistake of buying some distressed junk debt of Oakwood Homes. “Soon thereafter. and what I had learned from the Oakwood experience. to say so.” 59 Clayton’s board jumped at the offer. my evaluation of Kevin.

and sales outlets will be substantially increased. ‘You’re too late. so if my multiplication is right.” 61
When Berkshire acquired Central States Indemnity Co. William M.” 60
KNOW THE DIFFERENCE BETWEEN PRICE AND VALUE
“Price is what you pay. geographical reach. last year we made $10 million. Clayton’s manufacturing capacity. will probably return a small proﬁt to us. the debt of Oakwood that we own.” 63
. that’s $100 million. ‘Okay. As a by-product. described the negotiations this way: “The price he quoted us was that he buys companies for 10 times [annual] earnings. Kizer Sr.’ And I said. ‘ Well. of Omaha in 1992. ‘$125 million?’ He said. I suggested.’ and I gulped.’ ” 62
SEEK INTRINSIC VALUE
Intrinsic value is a critical and at the same time an elusive concept: “There is no formula to ﬁgure [intrinsic value] out. And he said.About Investing 133 “When the transaction closes. You have to know the business [whose stock you are considering buying]. which we bought at a deep discount. Value is what you get.

You can’t buy what is popular and do well.” 66
EXPECT TO BE OUT OF STEP
“Berkshire buys when the lemmings are heading the other way. But if you can buy into a business for less than it’s worth today. and it has to be run by honest and able people. It has to be selling for less than you think the value of the business is. The time to get interested is when no one else is.” 68
.” 65 Don’t worry about value investors snapping up all the bargains: “I have seen no trend toward value investing in the 35 years I’ve practiced it.” 64
“It doesn’t have to be rock bottom to buy it.” 67
“Most people get interested in stocks when everyone else is. and you’re conﬁdent of the management. you’re going to make money. and you buy into a group of businesses like that.134 WARREN BUFFETT SPEAKS “Valuing a business is part art and part science. There seems to be some perverse human characteristic that likes to make easy things difﬁcult.

. They struck up a conversation. went to lunch. there’s more than one way to get to ﬁnancial heaven.About Investing 135 “You don’t need to be a rocket scientist.” 70
THE USED-CIGAR-BUTT SCHOOL OF INVESTING
A GENTLE DISCOURSE BETWEEN WALTER SCHLOSS AND WARREN BUFFETT
A zealous student of Ben Graham at Columbia. Walter Schloss. and have been friends ever since. Schloss keeps fund expenses at a minimum and forgoes management fees in years his funds make no gains.” Schloss says. who worked at Graham-Newman Co. “The Super Investors of Graham and Doddsville.” 69 “Happily. Schloss has delivered a compound annual gain of just over 20 percent. Schloss later left the Graham ﬁrm and went into business for himself. compared to a Standard & Poor’s (S&P) Industrials advance of just under 10 percent.” Through 39 years.71
. thick and thin. also was there. “I don’t think I should get paid if I do a lousy job. Buffett spotlighted Schloss’s remarkable investment record in his now famous essay. Rationality is essential. Warren Buffett went to New Jersey for an annual meeting of a company in which Graham owned shares. Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ.

Warren doesn’t like that. but I can’t help it.136 WARREN BUFFETT SPEAKS
“I think Walter’s operational style should be a lesson for us all (one Charlie has already mastered).” Buffett said. Warren’s people knock themselves out after he buys the business. I’ll tell you that! Schloss: I really don’t like talking to management. such as meetings with top management. Now. You don’t have to hold their hand. so that’s an unusual trait. They don’t argue with you. Warren is an unusual guy because he’s not only a good analyst. That’s an unusual combination. Stocks really are easier to deal with. he’s a good salesman. Buffett explained that Graham felt it was sort of cheating to use any tool. Schloss (later in the discussion): I own a lot of stocks. Walter is running an ofﬁce for a year on what it costs Berkshire to start the engines on The Indefensible. but Walter has been more of a purist on that. Over the years. Buffett: I was inclined to cheat. I’m sure he would quit the very next day. In effect. They don’t have emotional problems. he’s got some investment record. and he’s a very good judge of people. If I were to [acquire] somebody with a business. You have to do what’s comfortable for you.72 The following is a condensed version of affectionate bantering between Buffett and Schloss73 at Benjamin Graham’s 100th birthday memorial at the New York Society of Security Analysts. I would misjudge his character or something—or I wouldn’t understand that he really didn’t like the business and really wanted to sell it and get out. that are not available to individual investors. even if it’s not as proﬁtable
.

or a promise of future earnings. Using our purchase price and today’s earnings. For example. You ﬁnd these well-smoked. EARNINGS. that makes it about 5 times earnings. You pick them up and get one free puff out of them. give stocks their value: “We like stocks that generate high returns on invested capital where there is a strong likelihood that it will continue to do so.” 74
EARNINGS. it was selling at about 23 times earnings. . the last time we bought Coca-Cola. but they’re free. I do a better job on assets than earnings because earnings have a way of changing. Anything is a buy at a price. I try to buy securities that are undervalued based on assets more than earnings. the risk of any one is not that great. the continued growth will be very hard. Lately. . There’s only one Warren. Maybe he’ll merge it [Berkshire] with Canada. [ Because I own so many stocks]. I call it the used-cigar-butt approach. not ready to give up on this): Walter has owned hundreds and hundreds and hundreds of securities. It’s really the interaction
. But he gets it on sale. down-to-the-nub cigars. Walter says that he has to buy an occasional new cigar. Schloss on another occasion said of Buffett: “There’s never been anything like him .About Investing 137
as what Warren does. Buffett ( later in the conversation. EARNINGS
Earnings.

” 78
LOOK FORWARD. I don’t worry about one quarter’s results.” 77 One ﬁscal quarter does not an earnings trend make.138 WARREN BUFFETT SPEAKS of capital employed.’s business: “As long as we can make an annual 15 percent return on equity. This general ﬁght-the-last-war approach has
. the return on that capital. as Buffett noted while discussing the direction of Salomon Inc. NOT BACK
“Pension fund managers continue to make investment decisions with their eyes ﬁrmly ﬁxed on the rearview mirror. and future capital generated versus the purchase price today.” 75
“If the business does well. the stock eventually follows. low-proﬁtability enterprises leverage themselves to the sky. Lenders understand this problem much better than they did a decade ago—and are correspondingly less willing to let capital-hungry.” 76 Buffett explains that buying the stock of companies with strong earnings is a hedge against inﬂation: “An irony of inﬂation-induced ﬁnancial requirements is that the highly proﬁtable companies—generally the best credits—require relatively little debt capital. But the laggards in proﬁtability never can get enough.

About Investing 139 proven costly in the past and will likely prove equally costly this time around. In 1973. the market price for the Post was $80 million. I see him as a great avoider [of poor investments].” 79 “Of course. they’d have said $400 million or something like that. and you would have had people show up and bid that much for them. the whole idea of a risk factor doesn’t make any sense to me. the investor of today does not proﬁt from yesterday’s growth. and the company had no debt: “If you asked anyone in the business what [the Post’s ] properties were worth. And it was being run by honest and able people
. You don’t do it where you take a signiﬁcant risk.” 80
AVOID RISK
Author Timothy Vick explains that “what Warren is always trying to do is minimize his losses to absolute zero. If you do that.” 82 Buffett often uses the Washington Post as an example of a risk-free investment.” 81 “I put heavy weight on certainty. . You could have an auction in the middle of the Atlantic Ocean at 2:00 in the morning. . But it’s not risky to buy securities at a fraction of what they’re worth. People say Buffett is a great stock picker. .

2 billion as a result of the 9/11 terrorist attacks on the World Trade Center. Rita. 2001. It wouldn’t have bothered me to put my whole net worth in it. The trick to survival is to have a strong enough company to withstand occasional large-magnitude setbacks. Not in the least. It took another blow in 2005 when underwriting went into the red due to $2. and Wilma. This is especially true in the reinsurance business. the life of boxer Mike Tyson. hurricanes and weather events are becoming ever more problematic for insurance companies:
.” 85 The Berkshire Hathaway Reinsurance group lost $2. Berkshire continues to write major terrorism reinsurance policies following September 11. the insurance industry is all about taking risk and occasionally taking a “mega-cat” (short for “megacatastrophe”) hit.140 WARREN BUFFETT SPEAKS who all had a signiﬁcant part of their net worth in the business.” 84 This said. Even though 2006 was a quiet year. and lots of lotteries. It was ungodly safe.” 83
“Risk comes from not knowing what you are doing. “When a major quake occurs in an urban area or a winter storm rages across Europe.5 billion in losses from hurricanes Katrina. light a candle for us. Buffett’s insurance group has provided insurance for the 2002 Winter Olympics.

About Investing 141 “Were the terrible hurricane seasons of 2004–05 aberrations? Or were they our planet’s ﬁrst warning that the climate of the twenty-ﬁrst century will differ materially from what we’ve seen in the past? If the answer to the second question is yes.” 87
DON’T GAMBLE
“The propensity to gamble is always increased by a large prize versus a small entry fee. explaining later.’ If he had not been traumatized by the loss. He lost a bundle in the South Sea Bubble. Sir Isaac Newton gave us three laws of motion. These could rock the insurance industry. That’s why Las Vegas casinos advertise big jackpots and why state lotteries headline big prizes. returns decrease as motion increases. It’s naïve to think of Katrina as anything close to a worst-case event. which were the work of genius. ‘I can calculate the movement of the stars. Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole. no matter how poor the true odds may be.” 88
. 2006 will soon be perceived as a misleading period of calm preceding a serious of devastating storms.” 86 There is a big difference between calculated risk and wild-eyed hope: “Long ago. But Isaac’s talents didn’t extend to investing. but not the madness of men.

’ I said. ‘Let’s go back to that restaurant.142 WARREN BUFFETT SPEAKS Some of futures markets’ products are nothing more than gambling games with a big skim for the casino owners: “And the more the activity.”91 “People would rather be promised a [presumably] winning lottery ticket next week than an opportunity to get rich slowly. “is what Warren looks for in stocks. too. we were going out again. He only invests in companies where the odds are great that they will not disappoint. A few days later. watch what you drink: “You’re dealing with a lot of silly people in the marketplace.’ He said. the greater the cost to the public and the greater the amount of money that will be left behind by them to be spread among the brokerage industry. He said.” said Weinberg. ‘Precisely.’ That.” 90 Marshall Weinberg of the brokerage ﬁrm of Gruntal & Co. you should be okay. it’s like a great big casino.” 89 If you are drawn to the casino. told about going to lunch with Buffett in Manhattan: “He had an exceptional ham-and-cheese sandwich. and everyone else is boozing. ‘But we were just there. If you can stick with Pepsi [or CocaCola]. Why take a risk with another place? We know exactly what we’re going to get.” 92
.

prosocial sectors of capital markets is deterred.About Investing 143 Gambling in the market is treacherous for investors. by an active and exciting casino operating in somewhat the same arena. The propensity to operate in the intelligent.” 93
WATCH FOR UNUSUAL CIRCUMSTANCES
“Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.” 95
. What we need are investors and advisers who look at the long-term prospects for an enterprise and invest accordingly. and serviced by the same workforce. We need the intelligent commitment of investment capital. not leveraged market wagers. and it has a negative effect on the national economy: “We do not need more people gambling on the nonessential instruments identiﬁed with the stock market in the country. not enhanced. nor brokers who encourage them to do so.” 94
DON’T BE SURPRISED BY CIRCUMSTANCES
“It’s only when the tide goes out that you learn who’s been swimming naked. utilizing somewhat similar language.

whereby it would be necessary to have a certiﬁcate to import that same value of
. In the end. however. assets: “Our riches are our curse in our attempts to attain a trade balance. The ideal is to borrow in a way no temporary thing can disturb you. Because we are rich. Until the plantation is gone.” 97 Buffett also says the ever-increasing U. we can continue to trade earning properties for consumable trinkets.144 WARREN BUFFETT SPEAKS
AVOID EXCESSIVE DEBT
Buffett calls borrowed money a dagger tied to a company’s steering wheel pointed straight at its heart: “You will someday hit a pothole. commercial realities would constrain our trade deﬁcit.” 98 Buffett has suggested a solution to the trade problem: a system of issuing import certiﬁcates when a certain value of goods is exported. We are much like a wealthy farm family that annually sells acreage so that it can sustain a lifestyle unwarranted by its current output.S. however.S. trade deﬁcit is a dangerously accruing debt that is secured by U. There’s always a slight chance of catastrophe when you own securities pledged to others.” 96 Charlie Munger also has an opinion on debt: “Warren and I are chicken about buying stocks on margin. the family will have traded the life of an owner for the life of a tenant farmer. it’s all pleasure and no pain. If we were less well-off.

. it’s too close. and imports and exports would always be of equal value. “If [the value of a company] doesn’t just scream out at you. consumption of foreign goods (getting a grip on our national impulse to consume more than we produce). Perhaps because the proposal would increase import prices and reduce U.About Investing 145 goods into the United States.
LOOK FOR SCREAMING BARGAINS
Authors who have written about Buffett’s investment style tell how he measures the stream of cash that the company generates today and into the future. A buy-sellor-barter system for the certiﬁcates would evolve. using a reasonable interest rate. I’ve never seen him do one. There seems to be no paper trail: “Warren talks about these discounted cash ﬂows . his activities fall into three major categories:
. discounts the cash ﬂow back to the present. Is it possible that Buffett just clicks the calculations off in his head? Maybe.S. Buffett put forth his scheme in an op-ed piece in the Washington Post in 1987. The exporter could sell or trade his or her certiﬁcates to an importer. there was no stampede to adopt Buffett’s plan.” replied Buffett. then. “It’s true.” Munger huffed. .”99
ARBITRAGE WHEN POSSIBLE
When Buffett’s approach to investing is distilled to its simplest form.

acquisitions. General Investments.100 Buffett learned arbitrage during his early days at Graham-Newman. “Because my mother isn’t here tonight. and so forth. misalignments in currency or commodity markets. what we think it will be worth. Opportunities that can occur during mergers. Buffett uses arbitrage when one company announces the acquisition of another company at a price higher than the current market quote: “We look at the arbitrage deal. once something is announced. 3. such as with the original Berkshire Hathaway and with GEICO. Undervalued. In its pure forv m. Arbitrages or Special Situations. In some cases.146 WARREN BUFFETT SPEAKS 1. Controlling Investment. We look at what they’ve announced. liquidations. Companies in which Berkshire has controlling interest or full ownership. arbitrage is buying at a low price in one market and selling at a higher price in another. Buffett moved progressively from a general investment to full ownership. 2.” Buffett said at a business seminar. We try to calculate the
. what we will have to pay. I’ll even confess to you that I have been an arbitrageur. good-quality securities that provide a comfortable margin of safety. how long we’re going to be in. reorganizations.

Munger explained. Equilibrium did arrive.32 per ounce. Berkshire’s silver cost him $650 million. Although he didn’t own the metal after that. a day when silver futures contracts were at $4. Buffett ﬁrst became interest in silver back in the 1960s when the metal was about to be demonetized by the U. the lowest price they had been in 650 years. That is the calculation: the name [of the companies involved] doesn’t make much difference. his investment had grown to $850 million.7 million ounces of silver.
. This is the largest single silver position since the Hunt brothers apparently tried to corner the silver market in 1980. By February 1998. 1997. when he announced the silver purchase. which represented 30 percent of the world’s above-ground inventory.S. he kept an eye on silver’s fundamentals. it only represents about 2 percent of Berkshire’s capital. Despite the astounding size of Buffett’s stash. government.About Investing 147 probability it will go through. At the 2000 annual meeting. but it took a good long time to happen. Buffett started buying around July 25.” 101 Early in 1998 Buffett announced that Berkshire had collected 129. Buffett and Munger decided that equilibrium would recur at some point and the price would be higher. When bullion inventories fell dramatically because of an excess of user demand over mine production and reclamation.

silver prices slowly rebounded. Buffett’s silver had tripled in value to nearly $1. I won’t do a damn thing.
BE PATIENT
“In investments. In nine years. If I get an idea next week. and if it’s General Motors at 47 and you don’t know enough to decide on General Motors at 47. you let it go right on by and no one’s going to call a strike. If not.3 billion.148 WARREN BUFFETT SPEAKS “It’s been a dull ride. I’ve had periods in my life when I’ve had a bundle of ideas come along.” 105
.” However.83 an ounce in 2005 and $13.” 104 “You could be somewhere where the mail was delayed three weeks and do just ﬁne investing. reaching $8.” 102 Buffett said on another occasion: “I’ve never swung at a ball while it’s still in the pitcher’s glove. there’s no such thing as a called strike.73 an ounce by February 2007.” 103 “You do things when the opportunities come along. You can stand there at the plate and the pitcher can throw a ball right down the middle. and I’ve had long dry spells. I’ll do something. The only way you can have a strike is to swing and miss.

” 110
“If [ former] Fed Chairman Alan Greenspan were to whisper to me what his monetary policy was going to be over the next two years. even Charlie seems extraneous: “My idea of a group decision is to look in the mirror. and at times. To most.” 108 A constant stream of people ask Buffett to invest in their ideas. Buffett absorbed the attitude of a self-reliant pioneer: “Buffett believes successful investment is intrinsically independent in nature.” 109 Buffett and Munger make a committee of two.” 111
.” 106 How much attention does Buffett pay to the recommendation of brokers? “Never ask the barber if you need a haircut. we’ll do okay.” 107 As for stock market forecasters: “Forecasts usually tell us more of the forecaster than of the future. it wouldn’t change one thing I do. he says: “With my idea and your money.About Investing 149
THINK FOR YOURSELF
Munger says that coming from Omaha.

you shouldn’t be in the equity-picking business.” 113
HAVE THE RIGHT TOOLS
Buffett’s suggestion to the independent investor is: “You should have a knowledge of how business operates and the language of business [accounting]. the smarter the players have to be.” 114 Understanding the fundamentals of accounting is a form of self-defense: “When managers want to get across the facts of the business to you. These will enable you to think independently and to avoid various forms of mass hysteria that infect the investment markets from time to time. it can also be done within the rules of accounting. It always amazes me how high-IQ people mindlessly imitate. at least in some industries. Unfortunately. it can be done within the rules of accounting. which may be more important than IQ points.” 112
“You have to think for yourself. If you can’t recognize the differences. and qualities of temperament. when they want to play games. I never get good ideas talking to other people. some enthusiasm for the subject.150 WARREN BUFFETT SPEAKS Especially don’t listen to a computer: “The more instruments that are designed.” 115
.

clothing. kicking society in the shins.. prosocial activity facilitating the ﬁne-tuning of a complex economy. bring a lot to the layman.” 117 “Wall Street likes to characterize the proliferation of frenzied ﬁnancial games as a sophisticated. while setting 5 to trading options endlessly on the future output of the 20?” 119
. shelter. assign 20 of their number to produce food. let’s say dentists.” 116
“Full-time professionals in other ﬁelds.” 118 Options traders are a favorite Buffett target: “It has always been a fantasy of mine that a boatload of 25 brokers would be shipwrecked and struggle to an island from which there could be no rescue. I wonder.About Investing 151
BE WARY OF WALL STREET
“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway. people get nothing for their money from professional money managers. etc. would they. But in aggregate. But the truth is otherwise: Short-term transactions frequently act as an invisible foot. Faced with developing an economy that would maximize their consumption and pleasure.

” 123
“I want to be able to explain my mistakes.” “Warren and I are a little different. both companies and stocks are seen only as raw materials for trades. I do my outside activities to atone. This means I do only the things I completely understand. and Warren uses his investment success to be a great teacher. in that we actually run businesses and allocate capital to them. Buffett said that the danger is twofold: Derivatives are seldom well understood by investors. And we love to make money for the people who trusted us early on. if you can’t understand it. when we were young and poor.” 121
ONLY BUY SECURITIES THAT YOU UNDERSTAND
“Investment must be rational. don’t do it. who called investment management a “low calling. the consequences can get interesting.” 122
Asked about the use of derivatives as an investment vehicle. and they tend to involve heavy leverage: “When you combine ignorance and borrowed money. Keynes atoned for his ‘ sins’ by making money for his college and serving his nation.152 WARREN BUFFETT SPEAKS “To many on Wall Street.” 120 Charlie Munger says he agrees with John Maynard Keynes.” 124
.

which are derivatives: “Why.” 125 Buffett says that over the years he has on rare occasion delved into derivatives. captured proﬁts of $332 million when the company was sold to Philip Morris Co. General Foods owns familiar brand names like Tang.”
AN OLD DOG PROWLS NEW MARKETS
What goes for individual stocks also goes for stock markets. in October 1985. Jell-O. Berkshire owned four million shares of General Foods Corporation and.About Investing 153 Buffett had a couple of highly proﬁtable years investing in direct currencies. are sometimes wildly mispriced. He personally manages the tricky investments. Buffett said: “I can understand Kool-Aid. However. and so far they have produced pretax proﬁts in the hundreds of millions of dollars. just like stocks and bonds. He once said: “It’s hard enough to understand the peculiarities and complexities of the culture in which you’ve been raised. you may wonder. usually for large dollar amounts. this is an area in which Buffett has changed. These came from forward contracts. are we fooling around with such potentially toxic material? The answer is that derivatives.
. and Kool-Aid.

154 WARREN BUFFETT SPEAKS much less a variety of others. Anyway, most of our shareholders have to pay their bills in U.S. dollars.” 126 Additionally, the U.S. equity market is huge: “If I can’t make money in a $5 trillion market, it may be a little bit of wishful thinking to think that all I have to do is get a few thousand miles away and I’ll start showing my stuff.” 127 Gradually, Buffett softened his attitude toward foreign investments. Partly, this was because of a scarcity of alluring investments in the United States; but it also is related to his views on U.S. trade imbalance and the negative impact that eventually will have on the strength of the dollar. In 2002, Buffett entered $11 billion worth of forward contracts to deliver U.S. dollars against other currencies; the contracts were proﬁtable to the tune of $2.2 billion. However, because of accounting rules related to longterm currency contracts, earnings were distorted in every quarter. Buffett began reducing his currency positions somewhat and partially offset this by purchasing equities whose prices are denominated in various foreign currencies and that earn a substantial portion of their proﬁts in other countries. By 2006, he was out of the direct foreign exchange market because the proﬁtable differentials were gone.

About Investing 155 On a 2002 trip to Britain, he told the Sunday Telegraph that he was looking for a “big deal” in that country. “We are hunting elephant. . . . We have got an elephant gun and it’s loaded” 128 Some of his forays in Great Britain include the liquor company Allied Domecq PLC, Yorkshire Electricity, and the grocery chain Tesco. He also bought 4 percent of the Korean steel company Posco and snapped up several Israeli technology companies. At the 2006 annual meeting, Buffett said that if he were starting over again, he would invest worldwide.

PETROCHINA
PetroChina is the world’s fourth-largest oil company measured by market capitalization, ranking just below Royal Dutch Shell. Berkshire holds 2.3 billion shares, which amounts to 1.3 percent of the foreign ownership of the company. Buffett paid $488 million for the shares, which in late 2006 had grown in value to $3.3 billion. PetroChina’s dominant shareholder is the government of China. This fact, plus a wave of indignation over human rights atrocities occurring in the West African nation of Sudan, prompted Buffett to post a commentary of Berkshire’s web site. Activists claim that PetroChina

156 WARREN BUFFETT SPEAKS has major oil investments in Sudan, which provides revenues that sustain an abusive, authoritarian government. There have been calls for Buffett to divest his PetroChina shares. In the web site commentary, Buffett noted that he’s seen no evidence that PetroChina has operations in Sudan, even though the nation of China does. “The Chinese government’s activities can be attributed to neither PetroChina nor the other major Chinese companies the government controls, such as China Mobile, China Life, and China Telecom. Subsidiaries have no ability to control the policies of their parent.” 129 Buffett goes on to caution protestors to be careful of unintended consequences. If China sold off its Sudan investments, it would be forced to do so at a very low price; and the most likely buyer would be the Sudanese government. “After such a transaction the Sudanese government would be better off ﬁnancially, with its oil revenues substantially increased. Since oil is a fungible product, Sudanese output would be sold in world markets just as oil from Iraq was sold under Saddam Hussein and just as oil is now sold by Iran. Proponents of the Chinese government’s divesting should ask the

About Investing 157 most important question in economics, ‘And then what?’ ” 130

AN EXPANDING CIRCLE OF COMPETENCE
This is how you expand a circle of competence: “Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management, and limited exposure to hard times.” 131 Next: “I would take one industry at a time and develop some expertise in half a dozen. I would not take the conventional wisdom now about any industries as meaning a damn thing. I would try to think it through. “If I were looking at an insurance company or a paper company, I would put myself in the frame of mind that I had just inherited that company and it was the only asset my family was ever going to own. “What would I do with it? What am I thinking about? What am I worried about? Who are my competitors? Who are my customers? Go out and talk to them. Find out the strengths and weaknesses of this particular company versus other ones.

158 WARREN BUFFETT SPEAKS “If you’ve done that, you may understand the business better than the management.” 132

“Anybody who tells you they can value, you know, all the stocks in Value Live and on the board must have a very inﬂated idea of their own ability because it’s not that easy. But if you spend your time focusing on some industries, you’ll learn a lot about valuation.” 133 Staying within his circle of competence means that Buffett will miss certain good investments simply because he didn’t have the skill or knowledge to evaluate the companies involved: “I missed the play in cellular because cellular is outside of my circle of competence.” 134 A circle of competence can serve over a lifetime. In 1995, Berkshire acquired the 49 percent of GEICO it didn’t already own. Buffett became interested in GEICO when he discovered that his professor, Ben Graham, was its chairman: “ When I was 20, I invested well over half of my net worth in GEICO.” 135 When asked why he invested in insurance, a notoriously roller-coaster business: “Sometimes it’s a good business—and that’s not very often—and sometimes it’s a terrible business.” 136

Out. Buffett used to say: “Our principles are valid when applied to technology stocks.” 137 Buffett is known for his skill at investing insurance ﬂoat. (Gates joined the Berkshire board of directors in 2005. He understands technology the way I understand Coca-Cola or Gillette. We just aren’t the ones to do it. We’ll wait. we want to be able to get up here next year and explain how we did it. Toss a lot into the Too Tough basket. I’m sure he looks for a margin of safety. the money that has been collected in premiums but not yet paid out in claims.”139 Perhaps it was his growing friendship and discussions with Bill Gates that prompted Buffett to drift into a higher level of technology. and Too Tough. If we are going to lose your money.About Investing 159 It depends on how the risk is managed: “I can go into an emergency ward and write life insurance if you let me charge enough of a premium. So our principles can work for any technology. Buffett acquired a
NOTE:
. I’m sure he would approach it like he was owning a business and not just a stock. If we can’t ﬁnd things within our circle of competence. we won’t expand the circle.”138 Charlie Munger has his own ideas on this subject: “About circle of competence—have three baskets—In.) In 1999. I’m sure Bill Gates would apply the same principles. but we don’t know how to do it.

” 141
.” 140 Buffett kept on expanding his circle. but I’ve made a bet on the people. “I read annual reports of the company I’m looking at. the privately owned leading distributor of passive.
BUY READING GLASSES
How does Buffett determine the value of a business? He reads a lot. and an 8. interconnect. One reason Buffett felt conﬁdent about Level 3 is because it was founded by a subsidiary of Omaha-based Peter Kiewit Sons Inc. Texas.160 WARREN BUFFETT SPEAKS 6. and Buffett’s friend Walter Scott Jr. buying Nextel debt and preferred shares and purchasing TTI. Buffett made a $500 million investment in Level 3 Communications. and I read the annual reports of the competitors—that is the main source of material. and I feel I understand the people. Level 3 is one of those times.8 percent stake in Great Lakes Chemical Corp. which operates a national high-speed network that transmits voice and data communications. TTI is the seventh-largest component distributor in the world. and electromagnetic components. There was a time when people made a bet on me. In 2002.. (and Berkshire board member) serves as chairman: “Sometimes you’re outside your core competency. Based in Fort Worth.1 percent position in TCA Cable TV.

About Investing 161 When he ﬁrst took an interest in GEICO, this is what Buffett did: “I read a lot. I was over at the library. . . . I started with Bests’ [insurance rating service], looking at a lot of companies, reading some books about it, reading annual reports, talking to [insurance specialists], talking to managements when I could.” 142 Munger concurs that reading is essential: “In my whole life, I have known no wise people—none, zero—[who don’t read]. You would be amazed at how much Warren reads. . . . My children probably think of me as a book with two legs sticking out.”143 Don’t blame yourself, Buffett says, if you don’t understand everything: “It’s not impossible to write [an accounting] footnote explaining deferred acquisition costs in life insurance or whatever you want to do. You can write it so you can understand it. If it’s written so you can’t understand it, I’m very suspicious. I won’t invest in a company if I can’t understand the footnote because I know they don’t want me to understand it.” 144

162 WARREN BUFFETT SPEAKS “Investing is reporting. I told him to imagine he had been assigned an in-depth article about his own paper. He’d ask a lot of questions and dig up a lot of facts. He’d know the Washington Post. And that’s all there is to it.” 145 Buffett’s research takes curious turns. He once sat behind the cash register at Ross’s, a favorite Omaha steakhouse, counting how many customers used American Express cards.146 Sometimes the research doesn’t even seem like research: “ I remember I went to see Mary Poppins at a theater on Broadway at 45th [Street] at about 2:00 in the afternoon. I had a little attache case and everything. I got up to this woman at the ticket booth and said, ‘I’ve got a kid around here someplace.’ I was going to see if this [movie] could be run over and over again in the future.” 147

KEEP IT SIMPLE
When a friend suggested Buffett try his hand at real estate, he replied: “ Why should I buy real estate when the stock market is so easy?” 148 “[ Value investing] ideas seem so simple and commonplace. It seems like a waste to go to school and get a Ph.D. in economics. It’s a little like spending eight

About Investing 163 years in divinity school and having someone tell you the Ten Commandments are all that matter.” 149 When asked how he and Munger perform “due diligence” on companies they buy, Buffett said: “If you have to go through too much investigation, something is wrong.” 150 Charlie said they were once subpoenaed for their staff papers on an acquisition: “There weren’t any papers. There wasn’t any staff,” Munger said.151 In 1986, Berkshire Hathaway ran a newspaper advertisement seeking companies to buy. It read: “We use no staff, and we don’t need to discuss your company with consultants, investment bankers, commercial bankers, etc. You will deal only with Charles Munger, vice chairman of Berkshire, and with me.” 152

“All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.” 153

“Talking at business schools, I always say [students] would be better off if, when they got out of school, they got a ticket with 20 punches on it. And every time they make an investment decision, it uses up a punch.

164 WARREN BUFFETT SPEAKS You’ll never use up all 20 punches if you save them for the great ideas.” 154
NOTE:

Forbes columnist Mark Hulbert ran some numbers and determined that if you remove Buffett’s 15 best decisions from the hundreds of others, his long-term performance would be mediocre.155

Charlie Munger says this about the simplicity theory: “If you believe what Warren says, you could teach the whole [portfolio management] course in a couple of weeks.” 156

THINK BIG
At the beginning of a Berkshire Hathaway annual meeting several years ago, Buffett tapped the microphone to see if it was on: “Testing . . . one million . . . two million . . . three million.” 157 “ I made a study back when I ran an investment partnership of all our larger investments versus the smaller investments. The larger investments always did better than the smaller investments. There is a threshold of examination and criticism and knowledge that has to be overcome or reached in making a big decision that you can get sloppy about on small decisions. Somebody

About Investing 165 says, ‘I bought a hundred shares of this or that because I heard about it at a party the other night.’ Well, there is that tendency with small decisions to think you can do it for not very good reasons.” 158

“I can’t be involved in 50 or 75 things. That’s a Noah’s Ark way of investing—you end up with a zoo that way. I like to put meaningful amounts of money in a few things.” 159 Although Buffett says small companies can offer exceptional growth, such companies are inappropriate for a holding company of Berkshire’s size: “We’re looking for 747s, not model airplanes.” 160

“I’m like a basketball coach. I go out on the street and look for seven-footers. If some guy comes up to me and says, ‘I’m ﬁve-six, but you ought to see me handle the ball,’ I’m not interested.” 161 Large or small, the company must perform: “I’d rather have a $10 million business making 15 percent than a $100 million business making 5 percent.” 162

Large purchases (at least $10 million of after-tax earnings. 4. even preliminarily.
NOTE: NOTE:
. Individual investors can ignore the ﬁrst one. An offering price (we don’t want to waste our time or that of the seller by talking. 6. A subtle way of saying good management in place. Simple businesses (if there’s a lot of technology. 2. nor are “turnaround” situations). Demonstrated consistent earning power (future projections are of little interest to us.166 WARREN BUFFETT SPEAKS
KNOW WHAT YOU’RE LOOKING FOR
The Berkshire Hathaway advertisement for possible acquisitions that ran in the Wall Street Journal constituted a virtual checklist for value investors. Businesses earning good returns on equity while employing little or no debt. 3. and preferably much more). we won’t understand it). “Here’s what we are looking for. It is there because small purchases can’t make a blip on Berkshire’s bottom line. The fact that individual investors can proﬁt from smaller investments is an advantage. 5. Management in place (we can’t supply it). since it gives a much wider range of stocks from which to choose.” the ad read:163 1. about a transaction when price is unknown).

Occasionally the list is cast aside. he’s forced to agree with those who say that higher math skill is not needed for successful investing: “If calculus were required. Mr. You can thoughtfully establish certain qualities you’d like her to have. I really don’t think you’d have to take someone along to do calculus. you’re trying to ﬁgure out the value of a business.About Investing 167
NOTE: Luckily for small investors.
Each year in Berkshire Hathaway’s annual report. Market shows up every workday with an offering price.” 164
DON’T SWEAT THE MATH
Buffett says that because he never studied calculus. you meet someone and you do it. I’ve never seen any need for algebra. Essentially. Whether you made the right purchase or not would depend on the future earning ability of that enterprise. then all of a sudden. he says: “a lot like selecting a wife. It is. Buffett publishes a similar list of traits of a business that would interest him.” 165
. so division is required. If you were going out to buy a farm or an apartment house or a dry cleaning establishment. It’s true that you have to divide by the number of shares outstanding. and then relating that to the price you are being asked for the asset. I’d have to go back to delivering papers.

He developed it after he’d tried everything else: “I used to chart all kinds of stocks. they would publish some of them and pay $5.” 169
. read annual reports. but don’t do equations with Greek letters in them. That $5 was the only money I ever made using statistics.” 168 As a teenager. He was 17: “There was an item [in Barron’s] saying that if we would send along a description of how we used their statistical material. why are academic and professional journals dense with quantitative analysis? Buffett replied: “Every priesthood does it.168 WARREN BUFFETT SPEAKS “Read Ben Graham and Phil Fisher. This interest led to the publication of Buffett’s ﬁrst article.” 166 If higher math is unimportant in selecting stocks. Buffett was fascinated by technical information. the more numbers the better. How could you be on top if no one is on the bottom?” 167 Buffett’s mathless philosophy did not come naturally. I wrote up something about how I used odd-lot ﬁgures.

About Investing 169
ADMIRE FRUGALITY
“Whenever I read about some company undertaking a cost-cutting program.”171 Berkshire now owns 13.66% of wells Fargo. “When we heard that. For Buffett. I know it’s not a company that really knows what costs are all about.” 170
Berkshire Hathaway owned about 7 percent of the stock of San Francisco–based Wells Fargo. “we bought more stock.’ any more than he wakes up and decides to practice breathing. News reached Munger that Wells Fargo CEO Carl Reichardt discovered that one of his executives wanted to buy a Christmas tree for the ofﬁce. he observed: “Your board has collectively lost 100 pounds in the last year. Memos from the Chairman (Workman.” 172
Buffett wrote the foreword to Alan C. They must have been trying to live on their director’s fees. (Ace) Greenberg’s book. 1996). Reichardt told him to buy it with his own money.” said Munger. The really good manager does not wake up in the morning and say. Spurts don’t work in this area.
. ‘This is the day I’m going to cut costs. frugality begins at home. At the 1996 Berkshire annual meeting.

000 a year. and I now slavishly follow and preach his principles. He and former Capital Cities/ABC chairman Thomas Murphy had walk-on parts on the ABC television soap opera All My Children with soap queen Susan Lucci in
. opinionated. But it’s never too late.” 175 Buffett also applies thriftiness to his own ﬁnancial affairs. It’s just that all the football players would be earning a little less money. Ty Cobb played for $20. I used to discard paper clips. it will largely come out of the players. smart. Wrote Buffett: “Haimchinkel is my kind of guy—cheap. in the foolishness of my youth. I just wish I’d met him earlier in life.” 174 Sports shows also could be aired for less money: “My guess is that the quality of football would be identical if we’d been paying 20 percent less for the football rights. as Buffett noted when talking about programming at ABC: “The funny thing is. better shows don’t cost that much more than lousy shows.170 WARREN BUFFETT SPEAKS in which a ﬁctional character. Haimchinkel Malintz Anaynikal.” 173 The quest for quality and the need for frugality need not cancel each other out. if there’s 20 percent less money available for sports programming. urged Bear Stearns employees not to waste resources. when. In the end.

which is about a million a day—and I’m spending today here.
FACE FACTS
Don’t take the performance of your stock personally. he usually does achieve it. we have to make $400 million [a year] before tax. However. Buffett and Murphy were each paid about $300 for their performances. or $300 million net.” Buffett said.” 177
NOTE: In fact.About Investing 171 1993.” 178 Buffett has good reason for his interest in entertainment and leisure-oriented businesses: “The market will pay you better to entertain than to educate. Buffett only achieved more than a 15 percent gain in one year since 2000.”176
SET REALISTIC GOALS
Buffett says a growth rate of 15 percent per year is realistic.” 179
. Berkshire’s book value has grown at an annual average rate of 21. size is a drag. “I’m going to frame this. After all: “A stock doesn’t know you own it. Murphy said. though not always easy for him to achieve: “If we are to have a 15 percent gain.5 percent between 1963 and 2005. “I’m going to frame the stub. When handed his check.

Buffett says. bury it again.” 181
HE TELLS THEM BUT THEY DON’T LISTEN
Every year in Berkshire Hathaway’s annual report and again at the shareholder’s meeting. dig another hole.
. It has no utility. Anyone watching from Mars would be scratching their head. reminds him of a diner who asks the pizza maker to cut his pie into four slices rather than eight. people murmur to one another.” Buffett told shareholders at the annual meeting. is nonproductive: “It gets dug out of the ground in Africa or someplace.” The question. since he “couldn’t possibly eat eight. Gold. We melt it down. “Here comes the pizza story. Buffett says.” 180
When Buffett is asked at Berkshire annual meetings why he doesn’t split the company’s high-priced shares.172 WARREN BUFFETT SPEAKS
CASE IN POINT:
Berkshire’s World Book encyclopedia has difﬁculty delivering the same stellar returns that Buffett’s investment in the Disney Company achieved. Buffett warns investors not to expect Berkshire’s performance to continue at former speeds: 1985: “I can guarantee we will not do as well as in the past. and pay people to stand around guarding it.

1995: At Berkshire Hathaway’s annual meeting. Buffett again cautioned: “The future performance of Berkshire Hathaway won’t come close to matching the performance of the past.” And anyhow. Berkshire’s A shares traded as high as $38. the time Buffett has controlled the company. compared to a 22 percent average annual increase in the previous 20 years.About Investing 173
“I still think we may be able to do better than American industry as a whole. however. Berkshire chalked up a 48. By mid-1996. is the enemy of superior results.2 percent.3 percent in 1992. Yet Buffett did best the S&P 500. the shares had retreated to $32.000.000. which drags you down. which from 1999 to 2005 grew its book value by only 3.2 percent gain.”184 1999 to 2005: During this period. compared to 21. 2007: In 1996. “We don’t have to keep getting rich at the same rate.96 percent. Berkshire’s gain was a weak 13. 1992: Charlie Munger told Business Week: “Size at a certain point gets to be an anchor. Buffett’s prediction began to come true—the per-share book value only increased 6.” He explained that “a fat wallet.”183 Berkshire’s share price rose 20. while Buffett’s are after-tax.
. We always knew that it would. By spring of 2007. The S&P 500 numbers are pretax.000.5 percent from 1964 to 2005. a single A share traded for $108. which means he actually did considerably better. In 1986.”182 In 1984.6 percent.

but: “It’s no fun being a horse when the tractor comes along. your wife back.S. industry has always tried to do more with less. Name a company that has been ruined by bloat. I can’t name one. for example. That way you get your home back. Buffett noted that U.”187 Buffett agrees that it is sometimes wise to look at problems from the opposite direction: “It’s like singing country western songs backward. Buffett and Munger like industries in which change is limited. Said Buffett: “Take chewing gum.” 189
. or the blacksmith when the car comes along. corporate downsizing. Nobody’s come up with a new technique for that.” 188 Nevertheless.” 185
When asked what he thought of the wave of U. says Charlie Munger: “Name a business that has been ruined by downsizing. and so forth. Change is unavoidable.174 WARREN BUFFETT SPEAKS
EXPECT CHANGE
“Anything that can’t go on forever will end. Folks chew the same way today that they did 20 years ago. or at least manageable. I can name dozens.” 186 Turn the question backward.S. your auto back.

a step that would
.About Investing 175
BE CAPABLE OF CHANGE
When asked why he abandoned some value investing principles.000 in March 1996 (shares traded for $8. you bought it. ﬁnally peaking at just over $38. and if it met certain tests of book value. It requires learning more about what’s going to produce steady and increasing ﬂows of cash in the future—if you are working with small sums of money. you don’t even have to work that hard. and earnings.” 191
BABY BERKSHIRE SHARES
During the 1990s. We [at Graham-Newman] used to have a one-page sheet where you put down all the numbers on a company. Warren Buffett stood ﬁrm on his refusal to split shares. I didn’t go from ape to human or human to ape in a nice even manner. Buffett replied: “As we work with larger sums of money.” 190 Buffett did not abruptly abandon certain teachings of Graham and his co-author David Dodd: “I evolved.550 in mid-1989). Despite the dizzying climb. working capital. It was that simple. Berkshire Hathaway’s share price rode on the wings of a soaring market. it simply is not possible to stay with those subworking capital types of situations.

arbitrage action between the two types of shares has almost always kept A and B prices in a 1-to-30 balance. outside events compelled him to create the moral equivalent of a split. If B shares ever rise above one/thirtieth the price of an A. He said he didn’t want Berkshire in the hands of speculators. however. Buffett announced he would issue B shares. of Berkshire Hathaway stock. are not allowed to convert to A shares.176 WARREN BUFFETT SPEAKS
make it easier for new investors to buy and existing investors to sell. The new shares were issued at one-thirtieth the price of the existing. someone—perhaps a New York Stock Exchange specialist or Buffett himself—buys A shares and
. Voting rights are unimportant since Buffett and Munger have enough shares to outvote all other holders. or secondary common shares. even if holders own 30 of them. The only features that make B shares secondary were the lack of voting rights and the fact that B shareholders are ineligible for the charitable giving program Berkshire used at the time. no matter what the prices of the two shares are. and the most effective deterrent he could think of was a steep share price. shares. B shareholders. “May you live until Berkshire shares split. or A. As Buffett anticipated. That spring.” Buffett held true to his word. but within a few weeks of the 1996 price peak. Buffett signed birthday cards with the line. And who in his or her right mind would vote against Buffett and Munger anyway? The advantage to A shareholders is that they can convert to 30 B shares at any time.

“We don’t want to appeal subliminally to people who harbor these hopes. and it’s mathematically impossible. even if it is once removed. in Buffett’s view. If the B shares sell for less than one/thirtieth an A share. Others said he was just being consistent. Investors could hold the units until a 10-year maturity date or trade them on the New York Stock Exchange like any other security.”193 Critics said Buffett’s controlling nature caused his reaction.”192 Or.” Buffett said. Speculation is speculation. Buffett always said he wanted dedicated shareholders. “We do not want people to come in and think it’s a hot stock and it will be a lot higher in a year. What made Buffett modify his plans was a scheme by several investment ﬁrms to create unit trusts from a pool composed entirely of Berkshire shares. investors buy Bs instead of As.”194
. plus up-front commissions of as much as 5 percent. “It gets down to attracting the highest-grade shareholder we can get.About Investing 177
coverts them into B.000 per unit and pay annual fees. This pushes the price of the B shares down. The unit trusts were to be marketed to small investors hoping to participate in the remarkable gains enjoyed by those who had discovered Berkshire Hathaway early on. and demand drives the price of B shares higher. Investors would buy the bite-size portions of Berkshire for $1. more speciﬁcally: “There are people who think it (Berkshire’s phenomenal share price growth) can happen again from this kind of base.

” the prospectus for the shares read. The commission was purposely set low. low-cost means of investment in Berkshire so superior to the investments offered by the unit trust promoters that their products will be rendered unmarketable. . war broke out. thus minimizing the ﬁrst-week price spike caused by a limited supply and a high demand. . Buffett would answer. . If he were asked by a friend or family member whether he advised a new purchase of Berkshire shares at the current price. “Berkshire intends to provide a direct. Mr. one of the ﬁrms that proposed such a unit trust.
. since 1992 at a rate far higher than any increase in the stock’s intrinsic value. would entice many small investors into an investment unsuitable for them and overwhelmingly likely to leave large numbers feeling disappointed and abused. . . giving little incentive to brokers to push investors into the initial public offering.178 WARREN BUFFETT SPEAKS
In a letter of protest to Five Sigma Investment Partners of Bala Cynwyd. Berkshire arranged the offering through Salomon. Charlie Munger wrote: “Your trust .’ ” 195 Munger said he feared aggressive sales efforts would act like “gasoline poured on a ﬁre. ‘No.” When it appeared that Five Sigma would not back off.” Munger added: “Berkshire’s stock price is now risky because [of ] dramatic appreciation . . Pennsylvania. . Buffett also said the company would issue as many shares as the public wanted. Buffett announced the B share offering.196 To discourage brokers from hyping the new stock.

. “It doesn’t seem to be a completely logical situation. He said they were “not undervalued. and he doesn’t want somebody making a buck off the name of Warren Buffett.” “Mr. a consultant at Ibbotson Associates Inc.” 197 At the 1996 annual meeting. obviously rankled that the subtlety had been missed by journalists and investors alike.” 198 William LeFevre. At the 1996 annual meeting. a shareholder asked about Berkshire’s shares being overvalued. The distinction seemed fuzzy to many in the investment world.” 199 Others. Buffett replied that he had not said the shares were overvalued. senior market analyst at Ehrenkrantz King Nussbaum Inc.” said. in New York. saw the structure of the vehicle. “There are a lot of questions legitimately as to why he’s doing this. Buffett has always been a champion of shareholder rights.” There’s a distinction. Buffett described the unit trusts as “a high-commission product with substantial annual fees. “His credibility is as high as it gets. suspected Buffett’s territory had been invaded. a Chicago stock research and consulting ﬁrm. however. as the source of Buffett’s problem. Derek Sasveld. Buffett repeated Munger’s message to Five Sigma: “Management does not believe that the company’s stock is undervalued. and he doesn’t like the fact that to buy into the unit investment trusts is not as economically feasible as buying
. Buffett insisted.About Investing 179
On the front page of the prospectus. rather than the intrinsic value of the stock.

The A shares quickly receded from a high of $38. Stock market columnist Malcolm Berko ran a brief analysis of Berkshire for his readers. Berko estimated the NAV of Berkshire A shares at $15. thought Buffett might have been understating the overvaluation problem. “So.000.200 With the Baby Bs.” Berko wrote. Barron’s columnist Alan Abelson dismissed the “not undervalued” statement—plus prospectus disclaimers that the company’s intrinsic value could continue to grow at past rates—as mere pandering to regulators. however. in my opinion. truth wounds.” said James Mulvey. Berko estimated that Berkshire (both A and B) was selling at a massive premium over its net asset value (NAV). you gotta be dumber than a bag of ball-peen hammers to pay a $21.000 within a few weeks. the same deal could be had with only the payment of a broker’s commission.180 WARREN BUFFETT SPEAKS
the common stock. an analyst at Dresdner Securities USA Inc. but the shares settled in at just over $1. describing it as a closed-end mutual fund. as investors called them. There was a price hop shortly after the offering. “To Warren Buffett we say.000 back to the $33.000 range.
. cynicism kills—think on what ye have wrought and repent! There’s still time to revise that prospectus.202 This debate over the value of Berkshire’s share price had an impact on the stock.” 201 Others.110.000 premium over NAV to own BRKA. A small phrase—‘just kidding!’—inserted on the front page right below those caveats will do the trick. The B shares were issued at $1.

size does not guarantee high performance. rather than building net worth.g. more than 517. its book value has grown an average of 21..” 203
.000 shares. At ﬁrst. Berkshire’s per-share book value of both A and B shares increased 18. But it’s not all bad news. Exxon Mobil and other companies earn far more than Berkshire.9 billion is a record for a one-year gain in net worth—more than has ever been booked by any American business.About Investing 181
The Berkshire B stock sold like ice in Arizona despite Buffett’s frank—though somewhat perplexing—disclosure as to the intrinsic value of Berkshire Hathaway. leaving aside boosts that have occurred because of mergers (e. but their earnings largely go to dividends and/or repurchases.000 individuals. but that number was increased four times.500 were issued. certain ratios have been erratic. For 2006. Ultimately. the company said it would issue 100. it may slow growth. and Buffett has had some bad years. Of course. AOL’s purchase of Time Warner). as he always warned. doubling Berkshire’s shareholder base to 80.4 percent compounded annually each year:
“We believe that [the 2006 gain in net worth of ] $16. However. In fact.4 percent. and certainly one with more assets. Since 1996. Buffett has used the money collected from the B shares to help build a more powerful company. Over the 42 years Buffett has controlled Berkshire.

Investor Irving Kahn. “A little more time. who has known Buffett since his student days.” 205 “I’ve repressed my memory of the earlier sale of Cap Cities stock. please.182 WARREN BUFFETT SPEAKS
ADMIT YOUR MISTAKES
Buffett confesses to dozens of investment errors.” 204 Buffett takes his lumps with good humor: “Of course.
. but the corporate structure and name was retained as an investment vehicle. some of you probably wonder why we are now buying Capital Cities at $172. I spent a lot of time working on a snappy answer that would reconcile these acts. sold Berkshire’s holdings in the same company at $43 per share in 1978–80. “Even a man with Warren’s talents slips. The sagging textile business was ﬁnally closed down. Anticipating your question. And that’s the last time they asked me.” 206 Buffett occasionally gives bum advice: “My only role with the Washington Post’s sale of cellular phone properties was to recommend against the original purchase of the properties at one-ﬁfth the price they sold for. in a characteristic burst of brilliance.50 per share given that this author. a New England textile mill. observed. including buying Berkshire Hathaway.

“Unfortunately it was a 400-pound child. in 1998. was a problem child.” 208
. he had to go to the mat with Gen Re’s derivative segment. and its negative impact on our overall performance was large. Together.About Investing 183 They didn’t pay attention to me the ﬁrst time and they didn’t ask the second time. Cologne Re. he admitted. Buffett acquired the vast and venerable reinsurance company Gen Re for $22 billion. which does business in nearly 150 countries. Buffett discovered problems involving both underwriting and reserving that took years to correct. but he also was in step with his more recent goal of expanding into global markets. Almost immediately after the purchase. The company. Gen Re and Cologne Re are both the oldest and the world’s thirdlargest reinsurance operation. Worst of all. The deal had two beneﬁts: Not only was Buffett dancing within his circle of competence (in this case. insurance).” 207 It was a coup when. Connecticutbased General Re holds a 78 percent stake in the world’s oldest reinsurance company. But that wasn’t all. Buffett also had to wrestle with a Securities and Exchange Commission investigation into charges that some policies were knowingly written to falsely inﬂate client earnings.

Mark Twain said: ‘A man who tries to carry a cat home by its tail will learn a lesson that can be learned in no other way. he would opt for cats. I wasted several years while we attempted to sell the operation . however. and it cost Berkshire $404 million to get that far out of the business. one of them having a duration of a century. Buffett had warned that derivatives were a sea where dragons lurk. .184 WARREN BUFFETT SPEAKS “Long ago.)” 210
. saying he had cost shareholders a lot of money by not being decisive enough: “Both Charlie and I knew at the time of the Gen Re purchase that it was a problem and told its management that we wanted to exit the business. fault me for dithering. General Re came equipped with a derivatives operation holding 23. Rather than address the situation head on. .” 209 Years before buying Gen Re. It took six years to shrink the number of derivatives to 2.’ If Twain were around now. After a few days. Buffett spent 12 paragraphs of the 2005 annual report explaining General Re’s derivative drama. (Charlie would call it thumb sucking. he might try winding u a derivatives business. It was my responsibility to make that happen. Yet there were more losses to come.890.218 contracts.

which Buffet can invest for insurance group proﬁts. Buffett was at ﬁrst reluctant. Rick Guerin. powerful insurance force. in 2006. and. M. and Standard & Poor’s. did a quick analysis. Moody’s. found
. and both Warren and Charlie say they are pleased to own it. despite the fact the company was selling at $25 million (three times book value). One of Berkshire’s most valuable assets is insurance ﬂoat (one shareholder call it “leverage in drag” ). Gen Re is a whopping. The company holds the highest possible marks from A. Buffett told shareholders they would no longer have to hear him bemoan General Re’s derivatives. Gen Re provides nearly half of Berkshire’s $49 billion ﬂoat. He’d checked the numbers. bought See’s Candy.
NO THUMB SUCKING
Charlie Munger has little tolerance for dawdling. and an early investing partner. why vacillate? Such was the case back in 1972 when Buffett. Munger and Guerin found the opportunity in Los Angeles and called Buffett to suggest purchasing it. then the phone call got cut off. Buffett called back and gave the deal the green light. Munger. The portfolio had been reduced to an amount that was almost negligible and that posed no threat to the company. Finally. or “thumb sucking.” If you ﬁnd a good company at a good price.About Investing 185 Nevertheless. Best. Within minutes.

186 WARREN BUFFETT SPEAKS that it was a quality company with earning power and growth potential. Over the years, Berkshire’s stash of cash, along with Buffett’s and Munger’s quick brains, has allowed ﬂash decisions: “If I got a call this afternoon and somebody offered me A, B or—securities, assets or a business—and it looked like a good idea, we could sign a deal tonight. We move fast, and we always have cash.” 211 And yet, Buffett sometimes is guilty of thumb sucking: “My biggest lost opportunity was probably Freddie Mac (the mortgage-purchasing organization). We owned a savings and loan, and that entitled us to buy 1 percent of Freddie Mac stock when it ﬁrst came out. We should have bought 100 S&Ls and loaded up on Freddie Mac. What was I doing? I was sucking my thumb.” 212

JOIN AA (AIRLINES ANONYMOUS)
In 1995, Buffett took a $268.5 million write-off for 75 percent of his $385 million investment in USAir. The shares’ 9.25 percent dividend had not been paid since September 1994. In the spring of 1996, Buffett was searching for a buyer for the convertible preferred stock: “That was a senior security. It was a mistake, but it wasn’t a common equity we picked as a wonderful

About Investing 187 business. There aren’t that many wonderful businesses in the world.” 213 Buffett explained in a speech in North Carolina why airlines are not an investor’s friend: “The interesting thing, of course, is that if you go back to the time—and we’re in the right state for that—from Kitty Hawk, net, the airline transport business in the United States has made no money. Just think if you’d been down there at Kitty Hawk and you’d seen this guy go up, and all of a sudden this vision hits you that tens of millions of people would be doing this all over the world someday. It would bring us all closer together and everything. You’d think, my god, this is something to be in on. Despite putting in billions and billions and billions of dollars, the net return to owners for the entire airline industry, if you’d owned it all, and you’d put up all this money, is less than zero. If there had been a capitalist down there, the guy should have shot down Wilbur. One small step for mankind and one huge step back for capitalism.” 214 Buffett attributes his USAir purchase to temporary insanity. How will he fend off a future attack? “So now I have this 800 number; and if I ever have the urge to buy an airline stock, I dial this number and I say my name is Warren and I’m an airoholic. Then this guy talks me down on the other end.” 215

188 WARREN BUFFETT SPEAKS Buffett may be in Airlines Anonymous, but he still struggles with his affection for ﬂight-related businesses. His investment in USAir did not go well. Then he bought a corporate jet that, in a spasm of guilt, he named “The Indefensible.” Later, after the Salomon Brothers crisis, he renamed it “The Defensible.” His love affair with that jet ended in 1998 when he discovered a new object of aviation affection, NetJets. “I’m not ﬂying “The Defensible”—the very defensible. It didn’t make sense for me to own 100 percent of a plane. I thought that was my only option when I did it. To pay for four or ﬁve times the capacity you need doesn’t make any sense. Somebody who has a whole airplane is like a navy with one type of boat. They don’t need one destroyer; they need a whole array. I’m on a different mission all the time. I’ll have a 300-mile ﬂight in the States, [or] a 1,200 mile trip, or I’ll be ﬂying over here (Europe) and I have 11 aircraft types or something to choose from.” 216 NetJets sells fractional ownership of an aircraft, which allows people to buy a certain percentage of a speciﬁc airplane and use it or swap it for a proportional number of ﬂight hours per year. It’s so convenient that both Warren and Charlie (who used to ﬂy commercial coach) use the service. “Once you’ve ﬂown NetJets, returning to commercial ﬂights is like going back to holding hands.” 217

About Investing 189 Berkshire acquired the privately held company for $725 million in stock and cash. Alas, Buffett’s sad aviation karma showed up again. NetJet’s proﬁtability slipped right away, mainly due to a shortage of appropriate equipment, to high operating costs (fuel), and to its involvement in European markets. NetJets lost (pretax) $10 million in 2004 and another $80 million in 2005. Buffett maintains hope that the company will turn a proﬁt. In 2005, he wrote: “Rich Santulli, one of the most dynamic managers I’ve ever met, will solve our revenue/expense problem. He won’t do it, however, in a manner that impairs the quality of the NetJets experience. Both he and I are committed to a level of service, security, and safety that can’t be matched by others.” 218 Indeed, in 2006, the performance of NetJets improved, although it remained in the red. It was operating in the black in Europe, and Buffett reported that the value of the ﬂeet was far greater than that of NetJets’ three largest competitors. Those involved in the airline industry often remind nervous ﬂyers that the pilot’s life is on the line right along with theirs, so he or she cares deeply about getting you safely on the ground. Buffett ﬂies NetJets about 225 hours each year, and his family uses another 550 hours of ﬂight time. So other clients—including Tiger Woods,

190 WARREN BUFFETT SPEAKS Kathie Lee Gifford, Calvin Klein, and the band N’Sync— can rest assured that they will get the same high-quality personnel and airplanes that the Buffetts do. It’s a comforting thought.

LEARN FROM YOUR MISTAKES
Buffett says he made one of his worst decisions at age 21 when he put 20 percent of his net worth in a gasoline station. Over the years, he ﬁgures, the error cost him about $800 million in lost economic opportunity.219 The ﬁrst step to recovery is to stop doing the wrong thing: “ It’s an old principle. You don’t have to make it back the way you lost it.” 220 Berkshire does not pay dividends to investors. They thus avoid double taxation and, with no effort on their part, continually reinvest their earnings. The exception was a 10-cent dividend Buffett paid to his partnership in 1967. Of that, he says: “ I must have been in the bathroom at the time.” 221
NOTE: Buffett says that if the time comes when he believes shareholders can ﬁnd more lucrative ways to invest than Berkshire can, he will pay a dividend.

The Salomon government bond scandal taught Buffett a lesson that he might have preferred to skip:

.” 224 Before the Salomon incident occurred. Buffett says. Buffett replied: “Why are we vocal critics of the investment banking business when we have a $700 million investment in Salomon? I guess atonement is probably the answer. when Berkshire held a big stake in Salomon. are like: “ wonderful castles. but it will be what I will be doing until it gets done properly. dangerous moats. It’s not what I want to be doing. Buffett was asked why he made biting remarks about the banking industry. where the leader inside is an honest and decent person. surrounded by deep.About Investing 191 “You won’t believe this—because I don’t look that dumb—but I volunteered for the job of interim chairman.222 A battalion of lawyers ﬁling suits against Salomon helped focus Buffett’s attention: “ I may be the American Bar Association’s Man of the Year before the year is over.” 223 Buffett compared the year he spent in New York helping Salomon Brothers get back on its feet to war: “ You do it because you have to. but you’re not looking for another one. His favorite companies.” 225
BUY STORYBOOK STOCKS
Buffett’s favorite way of describing intrinsic value and margin of safety has literary qualities.

I mean. the castle gets its strength from the genius inside.” 227 (For more on moats. the leader makes gold but doesn’t keep it all for himself. If I were buying the store. Roughly translated. you could buy the whole company for $80 million when Snow
. but on that basis.) Buffett performed a real-world analysis on his favorite storybook stock back in 1969: “ When I buy a stock. see the sections “Appreciate Franchise Value” and “Respect Pricing Power. we like great companies with dominant positions. look at what Walt Disney was worth on the stock market in the ﬁrst half of 1966. whose franchise is hard to duplicate and has tremendous staying power or some permanence to it. and this didn’t look especially cheap.” which follow in this chapter.” 226
“You need a moat in business to protect you from the guy who is going to come along and offer [your product] for a penny cheaper. just as if I were buying the store down the street. and inside. the moat is permanent and acts as a powerful deterrent to those considering an attack.192 WARREN BUFFETT SPEAKS Preferably. I think of it in terms of buying a whole company. The price per share was $53. I’d want to know all about it.

as a partner. and then it seeps back in again.” 231
. You pump it out and sell it. because someday a fool will. a genius.
NOTE:
SEEK EXCELLENT COMPANIES
“You should invest in a business that even a fool can run.” 230 Nevertheless. He’s yours. And then there’s Mickey Mouse: “ The nice thing about the mouse is that he doesn’t have an agent. was experiencing management turmoil. Berkshire again held a strong position in Disney: “ Owning Snow White (the movie) is like owning an oil ﬁeld. Disney. and then [in addition]. which had been written off the books. and some other cartoons.About Investing 193 White. at the time. You own the mouse. you had Disneyland and Walt Disney.” 229 Disney ﬁnds it can reissue Snow White every seven years. Berkshire held the Disney shares for a while and then sold them. were worth that much [by themselves]. Swiss Family Robinson.” 228 Following the 1996 merger of Cap Cities/ABC with Disney.

there are going to be all kinds of factors that happen next week. Sugar prices have gone up and down.194 WARREN BUFFETT SPEAKS “In any business. So you would have lost half of your money one year later if you’d bought the stock when it ﬁrst came public. How much more fruitful is it for us to think about whether the product is likely to sustain itself and its economics than to try to be questioning whether to jump in or out of the stock?” 232
“Let’s say you were going away for 10 years. next year. which went public in 1919. where I knew the leader was going to continue to be the leader—I mean worldwide—and where I knew there
. and you wanted to make one investment. where I knew the market was going to continue to grow. A million things have happened. Sugar prices had changed pretty dramatically after World War I. and you couldn’t change it while you’re gone. They initially sold stock at $40 a share. But the really important thing is to be in the right business.8 million. and so forth. The next year. The classic case is Coca-Cola. We have had wars. next month. What would you think about? “I came up with anything in terms of certainty. We have had depressions. and you know everything you know now. but if you owned that share today—and had reinvested all of your dividends—it would be worth about $1. it went down to $19.

the
.” 234 Buffett once explained to then General Foods president Philip Smith why he was buying the company’s stock when nobody else was interested: “ You’ve got strong brand names. If you don’t know what to do with it.” 233
“Charlie [Munger] made me focus on the merits of a great business with tremendously growing earning power. which merged it into Kraft Food. someone else will. but only when you can be sure of it—not like Texas Instruments or Polaroid. where the earning power was hypothetical. Philip Morris is now known as Altria. I just don’t know anything like Coke.About Investing 195 would be big unit growth. General Foods was acquired by Philip Morris.” 235 In fact. you’re selling three times earnings when other food companies are selling at six to seven times earnings. “ The deﬁnition of a great company is one that will be great for 25 or 30 years. and you’re loaded with cash.” 236 One reason for buying excellent companies (in addition to strong growth) is that once a purchase is made.

” 239
From his boyhood.” 238
STICK WITH QUALITY
“It’s far better to own a portion of the Hope diamond than 100 percent of a rhinestone. A class handicapper says a
. an Omaha weekly newspaper. a trading stamp company. and a candy company.196 WARREN BUFFETT SPEAKS investor has only to sit back and trust the company’s managers to do their jobs. I really live a pretty easy life. Yet he told a reporter. plus a bank in Illinois. The speed handicapper says you try and ﬁgure out how fast the horse can run. and (2) tell us bad news right away. when he published a tipsheet called “Stableboy Selections. There is no reason to worry about the good news.” Buffett has shown an interest in horse racing: “ There are speed handicappers and class handicappers. They are (1) think like an owner. In 1973. interest in a half dozen insurance companies. Buffett already owned a good-sized chunk of Berkshire. a chain of women’s clothing stores. with no boastfulness: “ I can almost do it with my hands in my pockets.” 237
“ I tell everybody who works for our company to do only two things to be successful.

3 percent tax-free yield. offered a ﬁxed 16. And other people said. also known as WHOOPS) junk bonds in 1983 and 1984 when ratings indicated they were a high risk. If we wanted Moody’s and Standard & Poor’s to run our money. and it will work.About Investing 197 $10.000 horse will beat a $6.” 241 Later asked why he bought $139 million of Washington Public Power Supply System (WPPSS. Since then.7 million annual return.
NOTE:
JUNK BONDS
When asked what he thought of junk bonds. ‘Buy the best company. Graham says. we’d give it to them. and it will work. resulting in a $22. Buffett has made money in the junk bonds of RJR Nabisco.000 horse. Buffett answered: “ We don’t make judgments based on ratings.’ That’s class handicapping. ‘Buy any stock cheap enough.’ That was the speed handicapper.
NOTE:
. and Amazon. Buffett replied: “ I think they’ll live up to their name. Time Warner.com.” 242 The bonds. which did not default. Texaco. Chrysler Financial.” 240 Buffett began as a speed handicapper but progressed to class handicapping.

These businesses are usually overloaded with debt and often operating in industries characterized by low returns in capital. however. I don’t even know why the light goes on when I ﬂip the switch. Therefore. know how to pick junk bonds. both directly and
. So far.198 WARREN BUFFETT SPEAKS “I’m not an engineer. Management may even have interests that are directly counter to those of debtholders. I do.” Yet he has very different expectations from the two types of investments.” 243 In Berkshire’s 2002 annual report. the quality of management is sometimes questionable.” 244 Charlie Munger explained that Berkshire owns many ﬁxed-income and bond investments. Additionally. Buffett explained that investing in stocks and in junk bonds is similar in some ways: “ Both activities require us to make a price-value calculation and also to scan hundreds of securities to ﬁnd the very few that have attractive reward / risk ratios. this is not the case with junk bonds: “Purchasing junk bonds. we are dealing with enterprises that are far more marginal. While he expects all his stock purchases to reap proﬁts. we expect that we will have occasional large losses in junk issues. we have done reasonably well in this ﬁeld. however.

Now men are not inclined to shift around when they get that kind of situation. You know. Now.” “As long as Warren is doing it. . . .About Investing 199 through its insurance subsidiaries.” 246
. here’s something you do every day—I hope you do it every day—for $20 bucks [per year] you get a terriﬁc shaving experience. plus the distribution power. They have 90 percent market shares in some countries—in Scandinavia and Mexico.”245
APPRECIATE FRANCHISE VALUE
Buffett describes franchise value as a moat around the castle of business. So we have that extra category. and the position in people’s minds. and it doesn’t bother him that Berkshire is investing in something called “junk. but 60 percent by value are Gillettes. in terms of developing better razors all the time. when something has been around as long as shaving and you ﬁnd a company that has both that kind of innovation. Thirty percent of those are Gillettes. I love to see it done.” Munger said. “And we’ve made a few hundred million pretax dollars doing that over the years without much risk or fuss. He uses Gillette as an illustration: “ There are 20 to 21 billion razor blades used in the world a year.

It has got
. but I have this unmarked chocolate bar that the owner of the place recommends.’ if you’ll walk across the street to buy a Hershey bar or if you’ll pay a nickel more for the [Hershey] bar than the unmarked bar or something like that.
giving Berkshire a 3 percent ownership of P & G. ‘Here.” 249 Coca-Cola has the strongest franchise value of any company on the planet: “If you run across one good idea for a business in your lifetime. They’re not going to go home on Valentine’s Day and say.” 247
NOTE: In 2004. here are two pounds of chocolates. No one at Gillette has trouble sleeping. There are times when a bargain price isn’t the point: “ You know this. I took the low bid. try it with Hershey bars: “ If [you go into a store and] they say. If you didn’t grasp the concept of franchise value with Gillette. this (CocaCola) is the best large business in the world. you’re lucky. honey.’ It just doesn’t work. and fundamentally. ‘I don’t have Hershey bars. Gillette was merged into Procter & Gamble. that’s franchise value.” 248 Or try the sweetheart test.200 WARREN BUFFETT SPEAKS “ You go to bed feeling very comfortable just thinking about two and a half billion males with hair growing while you sleep.

GEICO hit rough water after growing so fast. It’s universally liked—the per capita consumption goes up almost every year in almost every country. There is no other product like it. a condition that did not alter their franchise value: “It was similar to American Express in late 1963 when the salad oil scandal hit it.” 252
NOTE: In 1976.
.” 251 More than once. We would have put it up. “And GEICO with no net worth was worth a tremendous amount of money. except it might get closed up the next day because it had no net worth. a lot of insurance companies for the ownership of it would have put up the net worth. It did not hurt the franchise of the traveler’s check or the credit card. but I was satisﬁed that the net worth would be there. The truth is. Buffett has acquired an interest in companies that faced serious ﬁnancial difﬁculties. It recovered after Buffett bought in. It sells for an extremely moderate price. but the answer of course was that American Express with no net worth was worth a tremendous amount of money. the company outpaced its capabilities.” 250 The moat of franchise power offers strong protection: “A takeover [of Coca-Cola] would be like Pearl Harbor. too. It could have ruined the balance sheet of American Express.About Investing 201 the most powerful brand in the world.

And there’s fantastic brand loyalty.” 253 Buffett later said he was quoting another person as having said this and meant the statement to be ironical. It’s addictive. enjoys price ﬂexibility. It costs a penny to make.’ that’s a good business. ‘More.202 WARREN BUFFETT SPEAKS Buffett has lost interest in certain franchises. Nevertheless. He is reported to have said: “I’ll tell you why I like the cigarette business. but he disposed of the shares in the early 1980s.
NOTE:
RESPECT PRICING POWER
A good business. he declined to join. Sell it for a dollar. Though he reportedly didn’t object to Salomon Inc. making an RJR Nabisco investment in 1988. how much do I charge for candy this fall?’ and it says. ‘Mirror. there is sad truth in it. Pricing power is a kissing cousin to franchise value: “If you own See’s Candy. Buffett anticipated the problems that would soon beleaguer the television industry due to its weakness in pricing power:
.254 In 1986. He once was one of RJR Nabisco’s (owners of Reynolds Tobacco) largest shareholders. Buffett explains. and you look in the mirror and say. mirror on the wall.

and GEICO.” 256 Float exists in other businesses as well. you’re seeing an adjustment. This ﬂoat.5 billion. Where was it? In the closet? I don’t know.About Investing 203 “ Essentially. but it can be used by it. TV had a lot of untapped pricing power many years ago. The excess money does not belong to Berkshire Hathaway. is around $6. I do not see galloping revenue gains beyond inﬂation in the network business. So the ability to price is not there to the same degree. without regard to the value of the ﬂoat. has produced $3 billion of it. from all of Berkshire Hathaway’s insurance businesses. which is now wholly owned by Berkshire. they were getting it and they developed a way of life that was predicated upon it.” 255
FIND A COMPANY WITH CHEAP FLOAT (THEN TRY TO NOT MISPLACE THE COMPANY)
Buffett learned early that insurance company proﬁts are based on superior investing of the premiums that accumulate awaiting the payment of a claim. They probably went a little beyond it. and they used it all up. Buffett observed: “ Blue Chip Stamp used to be that kind of a business until it disappeared one day.”
. “It has been a big mistake [ by some securities analysts] to think of the value of the insurance operation as its book value alone. And now. for years.

and a proliferation of competing advertising possibilities such as the Internet.). provides a secondary market for home mortgages.” 259
NOTE: Buffett made the preceding comment in 1986.
. Freddie Mac and its sister agency. limited monopoly. it competes with other advertising forms. The industry is a duopoly: “It’s the next best thing to a monopoly.). Buffett bumped newspapers down into a “good but not great” category and then lost interest entirely in new newspaper acquisitions. before Blue Chip disappeared.204 WARREN BUFFETT SPEAKS Trading stamps were popular as a grocery shopping incentive in the 1950s and 1960s but lost ground to coupons and other gimmicks. control 90 percent of this business. a quasi-public corporation. but not with anything exactly like itself. It’s one of the few businesses that tend toward a natural. Buffett had made considerable proﬁt investing the ﬂoat.257
NOTE:
LEARN TO LIKE MONOPOLY
Freddie Mac (the Federal Home Loan Mortgage Corp. retailing.” 258
“Newspapers are a marvelous business. Obviously. Show me another business like that—there isn’t one. Because
of fundamental changes in demographics. However. Fannie Mae (Federal National Mortgage Assn.

When the comment came up in court. And if management is following the same policy that I would follow if I owned the whole place. Buffett said: “I have said in an inﬂationary world that a toll bridge would be a great thing to own if it was unregulated. accusing Buffett’s newspaper of price ﬁxing. the latter sued.” 261
FIND MANAGERS WHO THINK LIKE OWNERS
“I always picture myself as owning the whole place. encyclopedia publishing.About Investing 205 During a circulation war between the Buffalo Evening News and the competing Courier-Express. A sore point was the rumor that Buffett had said owning a monopoly newspaper was like owning an unregulated toll bridge. or the uniform or
. You build the bridge in old dollars. that’s a management I like.” 262
“The best CEOs love operating their companies and don’t prefer going to Business Round Table meetings or playing golf at Augusta National. and you don’t have to keep replacing it.” 263 Buffett often says that because he’s not an expert in candy sales. “Because you have laid out the capital costs.” 260 Why? asked the opposing attorney.

still makes lots of money. Buffett says: “When a single steer topples.” 264
MANAGEMENT IS IMPORTANT. he likes managers who are. with few exceptions. studies prepared by his troops. Brown. . they know it.” 265 “I like a business that. BUT A GOOD COMPANY IS MORE IMPORTANT
“Our conclusion is that. . H. when management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics.” 267 “If you have mediocrity and you have a bunch of friends on the board. will be quickly supported by . it’s certainly not the kind of test
.” 266
AVOID THE INSTITUTIONAL IMPERATIVE (THE TENDENCY FOR CORPORATIONS TO ACT LIKE LEMMINGS)
“Any business craving of the leader. when it’s not managed at all. Of H.206 WARREN BUFFETT SPEAKS shoe business (all of which Berkshire owns). however foolish. shoe manufacturers and a major buyer of leather. it is the reputation of the business that remains intact. That’s my kind of business.

If you
.About Investing 207 you put a football team through. he loses his job. Does this mean he will acquire Berkshire shares if the price falls below intrinsic value? “That would make sense and I would do it.” 269
DON’T WORRY ABOUT DIVERSIFICATION
“Diversiﬁcation is a protection against ignorance. [It] makes very little sense for those who know what they’re doing. The board never loses their job because they’ve got a mediocre CEO. but only if Berkshire is cheaper than other stocks I’m interested in at the time. So. Buffett says one of the best investments the company can make is to buy back its own shares. you’ve got none of that self-cleansing type of operation that works with all the other jobs.” 268
FAVOR COMPANIES THAT REPURCHASE THEIR OWN STOCK
When a company’s own shares are trading at less than intrinsic value. If the coach of a football team puts 11 lousy guys out on the ﬁeld.” 270
“A lot of great fortunes in the world have been made by owning a single wonderful business.

and the scorecard on our investment decisions will be provided by business results over that period. and we expect the relationships to last a lifetime. In fact. you never get to know any of them very well. and not by prices on any given day. you don’t need to own very many of them. We don’t like to sell.” 274
“We like to buy businesses.208 WARREN BUFFETT SPEAKS understand the business.” 271 Buffett quotes Broadway impresario Billy Rose in explaining the difﬁculties of overdiversiﬁcation: “If you have a harem of 40 women.” 275
“Most of our large stock positions are going to be held for many years. Just as it would be foolish to focus unduly on short-term prospects when acquiring an entire company. we think it equally
.” 272
INVEST FOR THE LONG TERM
Buffett so deplores short-term trading that he has suggested a 100 percent tax on proﬁts made on stock held for less than one year. you may see us up here when [we’re so old that] neither of us knows who the other guy is.273 “Charlie and I expect to hold our stock for a very long time.

And then.e. do you want to start thinking about if somebody offers me 2X for this or 3X for this..About Investing 209 unsound to become mesmerized by the prospective nearterm earnings when purchasing small pieces of a company. the big moment comes.” 279
TO SUM UP
“Stocks are simple. You spend some time with them. you know. I would really like the idea that nobody wanted to leave their seats so that there wouldn’t be a seat available for anybody else.” 277 A corporate acquisition can be thought of this way: “It’s a little like a romance for a while. you have your ﬁrst date. and. I would not measure my success by how frequent the turnover of the congregation was or [what] the club membership would be. marketable common stocks. i. would I sell it?” 278 Buffett says he’s a “Rip Van Winkle” investor: “My favorite time frame for holding a stock is forever. he hopes Berkshire Hathaway shareholders will keep their shares as long as possible: “If I had a club or if I [were] preaching at a church. ﬁnally. All you do is buy shares in a great business for less than the business is intrinsically
.” 276 Not only does Buffett invest for the long haul. The next day.

great consumer wants. sell it. with managers of the highest integrity and ability. Great labor availability. invested in modern production facilities. “ When the stock doubles.
INVESTING IS ONE WAY OF CONTRIBUTING TO THE PUBLIC WELL-BEING
“ Large gains in real capital. That’s an equation understood by Russians as well as Rockefellers.” 280 Or. And it’s one that has been applied with stunning success in West
. Buffett says. his friends. PAY YOUR DUES TO SOCIETY
One of the qualities that makes Buffett. don’t buy it. then. Rogers said to study the markets carefully before buying a stock. and his colleagues unique is their attitude regarding their responsibility to others with whom they share the earth.”281
AND WHEN YOU’VE BECOME WEALTHY BY FOLLOWING IN THE FOOTSTEPS OF BUFFETT. are required to produce large gains in economic well-being. and great government promises will lead to nothing but great frustration without continuous creation and employment of expensive new capital assets throughout industry. Then you own those shares forever.210 WARREN BUFFETT SPEAKS worth.” What if the stock doesn’t double? “If it doesn’t double. you can follow Will Rogers.

one [company] after another has been transformed by people who have understood this game. That may be a good or bad thing. . even though we have enjoyed much the superior position in energy. . In the last few years . .” 283
WHEN REWARDS ARE DISPROPORTIONATE
Other people make equally valuable contributions to the safety. For one thing. they are transferring it from society to shareholders. High capital-accumulation rates have enabled those countries to achieve gains in living standards at rates far exceeding ours. leveraged buyouts aren’t always good for society. happiness. . but it isn’t creating value—it’s not like Henry Ford developing the car or Ray Kroc ﬁguring out how to deliver hamburgers better than anyone else. They aren’t creating value. . That means that every citizen owes a touch more of what is needed to pay for all the goods and services that the government provides. “Now when you read about Boone Pickens and Jimmy Goldsmith and the crew.” 282
Although some investors proﬁt.About Investing 211 Germany and Japan. and well-being of society. Buffett says:
. which ﬁnance social programs. health. substituting debt for equity reduces a company’s taxes. but they earn less than he does. they talk about creating value for shareholders.

If you can knock a guy out in 10 seconds and earn $10 million for it.” 285
. am I going to try to come up with some comparable worth system that somehow [re]distributes that? No. But I do think that when you’re treated enormously well by this market system. you’ll ﬁnd out how much this talent is going to produce in the wrong kind of soil.360. Mike Tyson. I will be struggling 30 years later. If you stick me down in the middle of Bangladesh or Peru or someplace. this world will not pay a lot for it. this world won’t pay a lot for it. so you can sing and everybody will pay you enormous sums to be on television or whatever— I think society has a big claim on that. I work in a market system that happens to reward what I do very well—disproportionately well. where. I don’t think you can do that. If you can bat . If you are a terriﬁc nurse. this world will pay a lot for that. too. in effect. the world will pay a lot for that. Now. the market system showers the ability to buy goods and services on you because of some peculiar talent—maybe your adenoids are a certain way. If you’re a marvelous teacher.212 WARREN BUFFETT SPEAKS “ This society provides me with enormous rewards for what I bring to this society.” 284
“ I personally think that society is responsible for a very signiﬁcant percentage of what I’ve earned.

or teaching. I don’t do that. There’s nothing material I want very much. or nursing. leaving much of his $200 million estate to charity): “ In essence. Or he may pass them on to others—either during his lifetime by gifts or upon his death by bequests.About Investing 213 “I don’t have a problem with guilt about money. though. I don’t use very many of those claim checks. The way I see it is that my money represents an enormous number of claim checks on society.000 people from doing AIDS research.
. If I wanted to. And the GNP would go up. and I would be keeping those 10. one who spends less than he earns is accumulating ‘claim checks’ for future use. I could hire 10.000 people to do nothing but paint my picture every day for the rest of my life. And I’m going to give virtually all of those claim checks to charity when my wife and I die. But the utility of the product would be zilch. he may reverse the procedure and consume more than he earns by cashing some of the accumulated claim checks.” 286 Buffett offered another example of how “claim checks” work in a eulogy he wrote for Omaha real estate developer Peter Kiewit (Buffett admired Kiewit because he saved his claim checks. It’s like I have these little pieces of paper that I can turn into consumption. At some later date.

” 288
PAY YOUR TAXES AND DON’T COMPLAIN
When explaining that Berkshire paid federal taxes of $390 million in 1993.214 WARREN BUFFETT SPEAKS “[ William Randolph] Hearst.” 287 Buffett’s friend Bill Gates says he expects to run Microsoft until 2008 and then promises to focus on how to give his fortune away. He is too imaginative to just do conventional gifts. at some point. Buffett expects that Gates will return some claim check to society: “ He will spend time. used up many of his claim checks in building and maintaining San Simeon. We work in a market-based economy that rewards our efforts far more bountifully than it does
. thinking about the impact his philanthropy can have. for example. Buffett said: “Charlie and I have absolutely no complaints about these taxes. “An army of servants catering to his personal whims—such as the employee in San Luis Obispo who spent much of a lifetime hauling ice daily to the bears in the private zoo—was unavailable to produce other goods and services useful to society in general. Hearst commanded massive amounts of labor and material away from other societal purposes in order to satisfy his personal consumption desires. Just as the pharaohs did when building pyramids.

By forcing investors to hold their shares longer. including institutional investors— would make the United States more competitive. partially redress this inequity.” For example.) that takes some of the inequity out of capitalism. Munger explains: “ I like a certain amount of social intervention (taxes. except that it reﬂects his Republican leanings. Why not try pushing our own horizon out at least a year?” 290 As often is the case. laws. which he called “tax cuts for the rich. But we remain extraordinarily well treated. Taxation should. etc. but I abhor any system that allows rewarding fakes.About Investing 215 the efforts of others whose output is of equal or greater beneﬁt to society. and does.” Instead. especially on inheritance taxes.” 289 Buffett has written that a 100 percent tax on proﬁts from the sale of a security that is held for less than a year— applied to everyone. “ We talk a lot about competing in a world economy against foreign decision makers who operate with a business horizon of decades. Munger says he dislikes worker’s compensation for job-related injuries and disabilities because it is difﬁcult to sort out the bogus claims.291 Buffett objected to President George W. he favored tax reductions for
. Bush’s tax cuts. the industry would be more stable. Munger’s position is similar to Buffett’s.

5 percent of the total income tax paid by all U. therefore.216 WARREN BUFFETT SPEAKS low. . who were more likely to spend the money on pressing and current needs and. Berkshire. Treasury delivered a speech defending the plan. corporations in ﬁscal 2003. . Two weeks later.” Buffett surmised that he was that certain oracle. the president’s Assistant Secretary for Tax Policy at the U. I’m paying taxes at a lower rate than my secretary . “ I hear this Republican message that we’re rich as hell and we’re not going to take it anymore.S. and yet it is among
. stock market valuation. my ‘ﬁddle playing’ will not get me to Carnegie Hall—or even to a high school recital. and frankly I think that’s crazy.and middle-income citizens. stimulate the economy. it must be noted. a sum equal to 2.S. on your behalf and mine.” 293 Buffett explained that Berkshire has only about 1 percent of the U. has played the tax code like a ﬁddle. He returned a volley in his next letter to shareholders: “Alas. adding. who. That doesn’t make a lot of sense to me. will send the Treasury $3.3 billion for taxes on its 2003 income.S. “This means that a certain Midwestern oracle. is still safe retaining all his earnings.” 292 Buffett’s essay critical of the Bush tax cuts ran in the Washington Post in May 2003.

” 295
“ I think I am undertaxed.About Investing 217 the top-10 corporate taxpayers. but I do not send along any voluntary payments. such as $35 for a bicycle.” 296 Nevertheless.386 pages: “ In the last ﬁscal year. I sent my check to the Treasury and it—without comment— promptly cashed it.6 trillion. the U. reporting my income as a 13-yearold newspaper carrier. no one else in America would have needed to pay any federal income or payroll taxes. The return covered three pages.” 294 In 2006.S. Naturally Buffett had to end with a joke: “ I do wish. that Ms. Berkshire Hathaway paid $4. Had there been only 600 taxpayers like Berkshire. I ﬁled my ﬁrst 1040. for more than half of one day. In 1944. both Buffett and Bill Gates say they would be willing to carry a heavier tax burden for the good of
. government spent $2. Berkshire picked up the tab for all federal expenditures. ranging from Social Security and Medicare to the cost of our armed services. We lived in peace. After I claimed the appropriate business deductions.4 billion in federal income tax on a return that ran 9. my tax bill was $7. or $7 billion per day. Olson would give me some credit for progress I’ve already made. Thus. however.

Rockefeller. “I frankly think it’s very unfair.”
. Carnegie’s trust amounted to $4.S.6 billion. Italy and the whole world stood in awe of Buffett’s ability and willingness to give so much to charity. Buffett said the current tax system needs to be more progressive. The Christian Science Monitor hailed the Buffett/Gates collaboration as the dawning of a new “golden age of philanthropy. philanthropists: railroad baron Andrew Carnegie and oil magnate John D. He pointed out that many soldiers ﬁghting in Iraq pay higher percentages of their income in taxes than he does. It far outshines the legacy of the two foremost U. Buffett and Gates—the two richest men in the world—dominated the news.S.218 WARREN BUFFETT SPEAKS the nation.” 297
GIVE AS GENEROUSLY AS YOU RECEIVE
The World Cup was in progress when Buffett announced that he would give $31 billion to the Bill and Melinda Gates Foundation (BMG). Despite Italian zeal for soccer and the fact that Italy was victorious.1 billion and Rockefeller’s to $7. Measured in 2006 dollars. history. The pledge of 85 percent of his fortune to worthy causes (another $6 billion was directed to various Buffett family foundations) is the most muniﬁcent act of giving in U. raising the foundation’s pot of gold to $60 billion.

Buffett wasn’t ready then. had a foundation that did fund charitable work. Buffett never considered it his job to give his money away. dashing Warren’s plans to leave the foundation work in her care. Buffett and his wife. Buffett endured criticism that he was too tightﬁsted with his money.
. He still was preoccupied with building and consolidating Berkshire’s strength and power. it sounds pretty funny.” 298 For years. In his earlier years. Furthermore. Melinda as well—not to him. I thought. But in truth. was the better party to be taking care of the philanthropy that was to be done 20 years out. building a bigger pile to be spent later. He had so much but gave too little of it to those in need. I’m giving it through him—and. importantly. “Someone who was compounding money at a high rate. he ﬁgured he would create the wealth. but it never seemed enough.” 299 Destiny interfered when Susie died. Being better at earning money than spending it. while the people compounding at a lower rate should logically take care of the current philanthropy.About Investing 219 Fortune magazine editor at large Carol Loomis asked Buffett if it wasn’t “somewhat ironic for the secondrichest man in the world to be giving untold billions to the ﬁrst-richest man”? Buffett said: “When you put it that way. Susie.

the Ford Foundation.” 301 With so much money in play. charity.220 WARREN BUFFETT SPEAKS “If I had died before Susie and she had begun to distribute our wealth. If the Gates Foundation were a country.
. The Buffett contribution makes BMG nearly six times the size of the next-largest private U. larger even than the oil kingdom of Kuwait. I came to realize that there was a terriﬁc foundation that was already scaled up and that could productively use my money now. BMG’s budget and resources are superior to even those of the World Health Organization ( WHO). You have committed yourselves to a few extraordinarily important but underfunded issues.” 300 Buffett’s decision to favor Gates over his own foundation was both original in concept and consistent with his business practices. He never starts new companies. its assets would make the ﬁfty-ﬁfth-largest economy in the world. [the Buffett Foundation] would have scaled up to a much bigger size.S. he either invests in stock of existing ventures or buys successful companies outright. a policy that I believe offers the highest probability of your achieving goals of great consequence. Buffett told the Gates: “I hope that the expansion of BMG’s giving is one of depth rather than breadth. the collaboration could be nothing short of spectacular.

the award amount could be millions higher.About Investing 221 In the ﬁrst year alone. Buffett’s contribution will increase BMG’s annual giving by $1. God bless them. Orosz.” observed Joel J. distinguished professor of philanthropic studies at Grand Valley State University in Grand Rapids.5 billion. If Berkshire Hathaway shares continue to increase in value. Warren’s wisdom will help us do a better job and make it more fun at the same time. But if they spend a ton of money on something that ﬂops.”303 Buffett has always said that he wanted the people who distributed his wealth to be daring: “I want my trustees to swing from the trees on a few projects that do not have natural funding constituencies but that are important to society. of course. I will come back and haunt them.
.” 304 The donation’s possible shock to the culture will be softened by the fact that Buffett’s contributions to the various foundations will be stretched over a 20-year span. “We’ve never had a foundation of this size and now.”302 Bill and Melinda Gates said they were “awed” by Buffett’s decision and looked forward to having him on the board. I tell them that if they start giving half a million to this hospital and half a million to that college. “To manage a $60 billion foundation has never been tried. inﬂuence. Michigan. “Warren has not only an amazing intellect but also a strong sense of justice.

pitching their plans to the Gates Foundation has become a bigger priority than seeking aid from Western countries. and deprivation in the world is astounding. Gates and Mr. government
. loss. “But their largesse. suffering. Buffett crowd out other efforts? Indeed. the powerful Buffett/Gates partnership is controversial. The Guardian summarized some issues this way: “For many African health ministers. Scientiﬁc journals have pondered how the Gates Foundation backing one route over another could distort research priorities.” the Guardian continued. could make other public efforts irrelevant. Gates’s—or Mr. the Guardian acknowledged that governments don’t always focus on the greater good and themselves can be erratic supporters of worthy causes. Since private foundations lack public accountability about the way they make decisions and choose priorities. The controversy over government funding of stem cell research is an example of how slow and painful reaching public consensus can be.222 WARREN BUFFETT SPEAKS Although the potential for alleviating pain.”305 In its article. could they be detrimental to the public good? There is also concern that foundations undermine efforts to increase the state’s role—although increased state role is not always a good thing. its size alarms those concerned about backdoor privatization of universal health care. Buffett’s— motives.” “Nobody questions Mr. Also. some activists fear. Is such concentration of power a good thing? Will Mr.

The budget for the U. National Institutes of Health (NIH) grew during the late 1900s and the ﬁrst few years of the twenty-ﬁrst century.”306
THOUGHTS ON CHARITABLE GIVING
When Buffett announced the additional funding of the Susan Thompson Buffett Foundation and the foundations
. both worthy and unworthy. Call it the shame and glory of philanthropy. he gives away billions of dollars to charities. federal funding was ﬂat at around $28 billion annually. It’s too bad that Buffett is so rich that when he funnels even a small portion of his wealth to his family’s hodgepodge of personal interests.’ ” wrote the Capital Research Center.S. The Guardian’s blowback was mild. and some goes to groups whose mission is to reduce the human species by ‘protecting’ women from the prospects of children and childbirth. some goes to radical environmental groups that intimidate companies that won’t protect certain tree species. compared to that of a few conservative groups: “It’s too bad that Buffett and his family choose to dabble in so many social ‘causes. the ﬁrst NIH budget declines since the 1970s. “Some of his money is going to charities that protect certain animal species.About Investing 223 priorities can shift. however. By 2006. The Wall Street Journal reports that the Bush administration planned to reduce funding even more.

he offered some thoughts (but not directives) on how to best use the money:307 • Focus on a relatively few activities that can make an important difference. • Expect to make mistakes. but favor a broader view.224 WARREN BUFFETT SPEAKS of other family members. First of all. Nothing will be accomplished if you always walk the safe path. • Concentrate on needs that would not be met without your assistance.
WHAT DOES THE BILL AND MELINDA GATES FOUNDATION DO?
Warren Buffett’s dramatic and unexpected partnership with the Gates family was an inspired move that is important for a host of reasons. • Pay attention to your home community. not by the person who makes the request.
. • Consider working with your siblings on important projects. Bill and Melinda already were gaining a reputation for reshaping the world through their giving programs. • Judge projects by how they match your goals and their chances for success. avoid making small gifts to a multitude of organizations that have other sources of funds and likely would go forward without your help. Conversely.

in other words. It will be spread around the entire globe. such as HIV/AIDS. BMG granted $500. The Gates Foundation is guided by the simple belief that “every life has equal value. [ Warren’s] money lets us expand the global health efforts.About Investing 225
By putting Buffett’s money in their hands. It won’t go to a big business school that will put Buffett’s name on a hall. it’s also a foundation with a heart for the smaller guy with immediate needs. HIV/AIDS. The money will be spent on improving world health. we can deepen the effort. and falling education standards in the United States. ‘Absolutely.” Melinda Gates said. education. “Can that be done in our lifetime? I’ll be optimistic and say. or the opera. the symphony. It won’t go to the ballet.309 “With the Warren Buffett money. and eradicating hunger. “Instead of one country. vaccinations for third-world children. we can work in ﬁve.’ ”308 The foundation also targets the world’s three most destructive disease: malaria. and tuberculosis.”310 While the BMG is known for tackling large-scale problems.” Bill Gates says that some of the foundation money will be used to help provide a ﬁrst-class education for every American child.000 to Save the Children for relief efforts following
. but especially to the Americas and third-world countries.” added Melinda Gates. it became clear where it will be spent. world hunger. it’s going to social causes. “I think we dream in our lifetime about an AIDS vaccine.

Some results of BMG’s earlier work are already documented. His philanthropy earned Microsoft the number-one spot in the Harris Interactive/Wall Street Journal survey to rank best and worst companies.
WILL BUFFETT’S GIFT AFFECT THE COMPANY?
This distribution of his Berkshire shares to charity. “Anybody who knows me also knows how I feel about making Berkshire as good as it can be.7 million deaths have been prevented through the work of the Global Alliance for Vaccines and Immunization (GAVI). It is estimated that 1. I wouldn’t do anything differently because I’m not capable of doing things differently. In its earlier years. Buffett said.226 WARREN BUFFETT SPEAKS
the devastating May 2006 Java earthquake. most admire the effort.” 312
. It is replacing libraries obliterated by Hurricane Katrina in the Gulf Coast.311 While Gates gets his fair share of criticism for social engineering. and that goal is still going to be there. will have virtually no effect on the share price. BMG even built a new baseball ﬁeld for a small Nebraska town where the kids had little to do except play ball. which was formed in 2000 with the foundation’s help.

Buffett also pointed out that with his and Susie’s stock in play. making Berkshire’s true market value become more apparent. the shares will gain greater liquidity.” 313 Buffett’s dominant shareholder position had always been a stabilizing force because he held so many shares and sold so few of them. Typically. a very low ratio for a large-cap stock.
THE LAST WORD
Publishers. and imitators have long awaited a book that Buffett himself would write. Buffett began discussing the project with a coauthor—Fortune editor at large and
. Since Buffett structured the gifts to be distributed over 20 years. And yet. Buffett assured his heirs that Berkshire Hathaway would continue to be a mighty machine: “I regard Berkshire as an ideal asset to underpin the long-term well-being of a foundation. even if all the donated shares are sold every year. fans.About Investing 227 In the letter notifying them of additional funding for their trusts. In 1973. investors. bookstore owners. the turnover ratio would jump to only 17 percent. the turnover ratio for Berkshire is only 15 percent a year. he will be releasing his grip on the company slowly enough for investors and Wall Street to adjust.

“If the book is to be biographical. I am enough of an optimist to hope that the most interesting chapters are yet to come. as time passed. I believe I should wait a while. I want it to be useful. hope for a biography faded. insurance analyst at Paine Webber. Loomis.228 WARREN BUFFETT SPEAKS writer Carol J. My most important ideas are straight from Ben Graham. Buffett allowed Yeshiva University law professor Lawrence A. Schroeder. In a 1989 letter to Loomis.” 314 Even though Loomis continues to be a close friend of Buffett and the most authoritative voice on Berkshire Hathaway. The Essays of Warren Buffett: Lessons for Corporate America (Cardoza Law Review. Then came a new development. In 1997. and he stated them far better than I ever could. he wrote: “The big hang-up—aside from a normal heavy dose of procrastination—is that if I ever do a book. Cunningham to repackage and publish letters from the annual report. Alice D. was allowed unprecedented access to Buffett and managers of Berkshire’s companies for her 1999 report on the company. That report became a best seller of sorts. Not long afterward came the announcement that Schroeder would write a
. This means good ideas—and ideas that have not already been presented. 1997) allows access to the message without digging through stacks of documents.

Buffett followers look forward to the book. Wisdom.
. it is scheduled to be published in 2008. With the working title of The Snowball: How Warren Buffett Collected Friends. and Wealth. Nevertheless. Buffett will not coauthor the book. and the fact that Schroeder is an analyst rather than a journalist or an author gives the impression that the book will be less personal and more business oriented.About Investing 229 book on Buffett and have the same access to him.

although not at the same time. Three generations of Buffetts operated it until it closed in 1959. Hathaway merged with Berkshire Fine Spinning Associates to become Berkshire Hathaway. They didn’t meet until they were adults.Time Line
The Warren Buffett and Berkshire Hathaway Saga
1869 – Sidney Buffett opened the Buffet & Sons grocery store in the Dundee neighborhood of Omaha. Massachusetts.
235
. Hettie Green. worked there as boys. 1888 – The Hathaway Manufacturing company was founded in New Bedford. Charlie Munger. Nebraska. Both Warren Buffett and his partner. as a cotton milling operation. the notorious Witch of Wall Street. served on the company’s board. In 1955.

six shares of Cities Service preferred. Buffett applied to Harvard Business School. Ben Graham.236 TIME LINE 1930 – Warren Edward Buffett is born on August 30 in Omaha to stockbroker Howard Buffett and his wife. 1947 – As a high school senior.800. he invested $1.200 in 40 acres of Nebraska farmland. Buffett sold at $40. Buffett partnered with a friend to buy a pinball machine that they placed in a barbershop. Lincoln. 1951 – After learning that his professor. At 14. where he studied under investment legends Benjamin Graham and David Dodd. and later the stock advanced to $200 per share. bought his ﬁrst stock. 1949 – Buffett left the University of Pennsylvania Wharton School of Business to enroll at the University of Nebraska. in partnership with his sister Doris. 1945 – Warren devised an elaborate newspaper delivery route that earned about $175 a month. Buffett traveled to GEICO
. at $38 per share. The business expanded to three machines and was later sold for $1. 1941 – Eleven-year-old Warren. 1950 – After completing college in three years and increasing his savings to $9. Leila. 1943 – Warren told a friend that he would be a millionaire by age 30 or jump off the tallest building in Omaha. He was rejected and enrolled at Columbia instead. was on the GEICO board.200.

000 from family and friends. 1951 – After earning his MBS at Columbia. 1952 – Warren and Susan Thompson. daughter of a local college professor. Buffett applied to Ben Graham for a job at his investment ﬁrm. were married. Buffett returned to Omaha to work in his father’s ﬁrm. and babies moved to New York. Susie. Graham had a change of heart and offered Buffett a job.Time Line 237 headquarters and. where he set up his own partnership with $100 of his own money and $105. by tenacity. Graham referred many of his former clients to Buffett.000. Graham suggested that it was not a good time to enter the business and turned him down. an investment that didn’t work out. Warren bought a Texaco gasoline station. Warren. 1956 – Graham retired and closed the Graham-Newman partnership. He returned to Omaha. got a private lesson on the insurance business from the future president of the company. 1954 – Warren kept in close touch with Ben Graham. 1959 – Buffett was introduced to fellow Omaha native Charles T. By now. Susie had been Warren’s sister’s roommate at Northwestern University. Munger. He also took a Dale Carnegie public speaking course and taught a night class in investments at the University of Nebraska. He and Munger soon became
. Buffett had accumulated $140.

Susie also served on the board of Berkshire Hathaway until her death. 1970 – Buffett penned his ﬁrst annual letter to shareholders. he began transforming Berkshire into the holding company it now is.238 TIME LINE partners. and Charlie eventually became vice chairman of Berkshire. The couple never divorced and often traveled and attended family events together. Among the assets he paid out were shares of Berkshire. Berkshire had been a major player in textiles. 1965 – Buffett took control of Berkshire and named Ken Chase as its new president. 1977 – Susan Buffett moved to San Francisco to start a life of her own. Soon afterward. 1969 – Although 1968 was his most successful year. Berkshire was selling at around $8 per share. 1967 – Berkshire paid its ﬁrst and only dividend: 10 cents per share. 1970 – Buffett contacted Katharine Graham and told her that he was acquiring substantial shares in the Washington Post Company but that he was not a predatory buyer. Buffett said he no longer could ﬁnd suitable bargains. but the industry was in decline.
. well below its net worth. 1962 – Buffett Partnerships began purchasing shares of Berkshire Hathaway. It was the beginning of a long friendship. He closed the partnership and liquidated assets.

He started investing in ABC.Time Line 239 1979 – Buffett’s net worth reached $620 million.7 million ounces of silver.berkshirehathaway. and for the ﬁrst time. 1993 – Buffett was number one on Forbes magazine list of richest people in the world. 1995 – Berkshire took a $258. Berkshire acquired the huge reinsurance company General Re. the television company that now is part of Disney. 1998 – Buffett collected 129. 1996 – Buffett decided to issue Berkshire Hathaway B shares to discourage opportunists who intended to establish mutual funds for those who couldn’t afford to pay $38. the price of silver had tripled. representing 30 percent of the world’s above-ground inventory. Berkshire Hathaway established a web site www. He bought most of the silver futures contracts at $4. 1988 – Buffett began buying Coca-Cola shares. By 2007. he was among the Forbes 400 richest Americans. 1992 – Buffett spent most of the year in New York serving as chairman of Salomon Brothers.000 or more for a single A share. Bill Gates was number two. which then became part of Berkshire’s core holdings.32 per ounce. He faced the daunting task of resolving issues surrounding an illegal bond-trading incident and saving Salomon Brothers. their lowest price in 650 years.5 million write-off for its investment in USAir.
.com.

9 billion. That same day. This is the largest act of charitable giving in U. 2004 – Susan T.S. 85 percent to the Bill and Melinda Gates Foundation and additional amounts to the foundations of his three children. On his birthday. its lowest price since mid-1997.6 billion.2 billion in underwriting as a result of the 9/11 terrorist attacks on the World Trade Center. Berkshire traded at $40. 2006 – Buffett donated most of his wealth to charity. Astrid Menks. he married long-time companion. and Wilma. The overheated market that became known as the Great Bubble ended on March 10. mostly in Berkshire shares.800. Rita.5 billion as a result of hurricanes Katrina. history.240 TIME LINE 2000 – Berkshire Hathaway became a derided “low-tech” stock as investors hotly pursued high-tech and Internet companies. Buffett died of a stroke following treatment for mouth cancer. The Nasdaq traded that day at its to-date high of 5.132. company. 2005 – The Berkshire Hathaway insurance unit lost $2. not counting gains caused by mergers. She left an estate of $2. The money will be dispersed over a 20-year period. a record one-year gain for any U.
. Berkshire Hathaway experienced a single-year net-worth growth of $16. 2001 – The Berkshire Hathaway insurance unit lost $2.S.